The road to financial independence is a journey.
You know you have arrived when you find the stage in your life where you work, live and do the things you really want to because you are not reliant on being on a payroll.
Imagine the freedom to do what you want to because you have sufficient income to maintain your lifestyle - and the income is from the savings and investments you have acquired over time.
Very few of us achieve this in our life times and yet it can be attained with the right approach.
Work on earning interest instead of paying it
If you are borrowing to maintain your lifestyle your standard of living is too high relative to your income.
You should be able to service your debt comfortably after having firstly set aside the appropriate amount for savings. The cost of your total debt should not exceed 30% of your monthly income.
If it is higher, then you probably should be living in a smaller house or driving a cheaper car.
The higher your debt the more you are paying the bank instead of yourself. The opportunity is lost for diverting interest repayments to compounding investment returns.
Don’t rely on luck
Many of us dream that one day in the future we will strike it rich in some business or win the lottery.
We don’t then see the need to save along the way, which ends up in playing savings catch up and often ends up being too little too late.
The only realistic way to have a chance of building enough capital is to take full advantage of compounding.
The sooner you start saving the less it will cost you as the power of compounding increases exponentially the longer you save. Its the only magical way to reach financial independence, but it does need time to make it happen.
Keep it real
Ignoring the value of money now and into the future will stand in the way of being financially independent. Many of us are more ready to spend now rather than save for the future.
Be realistic with your lifestyle needs and keep close to how your investments are keeping pace with inflation.
Your financial independence will be greatly affected by the ravages of this enemy as you move into the future. Investments over time will need to perform at a higher rate of return than the inflation rate.
Your financial independence relies on setting aside enough money over time compounding at a higher rate of inflation.
Listen to the audio below for more information
Read more from Paul Roelofse at www.investforlife.co.za