Everybody’s going into a battle day in and day out in this epic modern-day fight for freedom.
What are we fighting for, you ask?
Financial independence. The freedom to quit a job you don’t really like to spend more time with your family, travel the world or pursue a long-cherished passion project without worrying about going broke and starve.
This status feels so elusive to many as if it is reserved for a lucky few. But did you know that even a minimum wage earner can get there?
First, you need to sort through the misconceptions and really understand what being financially independent means.
Busting 3 Common Myths About Financial Independence
1. There is a specific number you have to hit
“What’s the magic number?” People often ask for that one exact amount their bank account balance need to show to be considered financially free. Many tend to strive for the same number that popular YouTubers or book authors had when they gained their freedom, not knowing that it isn’t the same for everybody.
The Bust
There is no “magic number”. It depends on your income, debt, and lifestyle.
If you are debt-free and are not burdened by payments for things and habits you can live without (like owning a car, subscriptions to multiple streaming services, latest gadgets etc.), then you’re on the right track.
The essence of financial independence is to not rely on paychecks to live, and that entails sacrifices. You need to strive to save, which means pushing down your living and miscellaneous expenses as much as possible to make sure that you are living well within or even below your means.
The percentage that you can consistently save from your monthly salary will dictate how quickly or slowly you can get to the goal. Start by setting aside 10% of your income and increase as you go along. Can you save 50% or more? Better! Have a target time frame – 5, 10, 15 years, etc. – the longer it is, the less stringent your savings regimen will be.
2. You will never have to work ever again
Most people picture endless lazy days binge-watching Netflix or jet-setting non-stop. You could technically do these things but if you lack a solid financial foundation, your finite resources will run out and you’ll be back in the hamster wheel chasing after paychecks again.
The Bust
You may not have to work again, but you need to keep earning money.
Financial independence doesn’t eliminate work; rather, it makes working for money optional. If you stop earning money, you will soon deplete the cushion you’ve created through saving.
To counter this, you need other sources of income that will continuously cover your expenses even if you don’t actively work. This is where investments come in.
Build a good foundation of investments that generate dividends or interest earnings which you can withdraw as needed to pay for your expenses. This way, you can choose to just chill or work on something even those not so profitable without the fear of running out of cash.
Put that weekly coffee budget to better use by availing of an easy investment plan from local banks or other known financial services. This can be as low as ₱500/month and deducted automatically from your account, so there’s less chance of spending it elsewhere.
3. Only rich people can be financially free
Think about this: your boss has a take-home pay of ₱200,000 a month, but pays for food, fuel, utility, household help wages, and weekly fancy dinners. ₱50,000 is saved after all these expenses.
On the other hand, you take home ₱20,000 a month, but you split house and food expenses with your family or roommates, commute, pack a lunch to work, and shop only when it’s necessary. You also contribute a meager ₱1,500/month to an investment fund with a 3-5% p.a. rate. You keep ₱10,000 a month after everything.
Let’s say both of you started saving at the same time. After a year, something unfortunate happens and both of you have to stop working, but each maintains the same lifestyle. Which one of you will end up bankrupt first?
The Bust
You can be closer to being financially independent than your boss.
Your seemingly “rich” boss will go through his or her savings in only 4 months, while you will have one whole year before you run on empty. To add to that, you still have the amount in the investment fund to tide you over an extra 2 months. Given more time, you will no longer need to rely entirely on your salary to cover your daily expenses.
This example illustrates that financial freedom demands disciplined spending. Just because you earn little doesn’t mean you can’t get there. It also follows that a pay raise does not entitle you to an instant lifestyle hike.
What makes people feel financially challenged is the pressure to earn more to accommodate ever-increasing luxury expenses. The simpler your lifestyle, the less you have to pay for, the less you stress over making money. Isn’t having that peace of mind the true aim of being financially free?
The most important aspect of achieving financial independence is managing your expectations. Don’t be swayed by incredible success stories that happened within only a year. Consider the difference between financial economic conditions before aligning your milestones to theirs.
Time plays a big part in your journey, so you have to be in this for the long haul. Remember that financially free people all have their money working for them. This will take time to set up depending on where you’re coming from, so be patient and keep at it. Consult an expert if you must to optimize your financial strategy.
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