Financial Independence Is Not About Making Lots Of Money
I bet a lot of you are going to argue with me about that financial independence title aren’t you? Well, I too used to think just the opposite to that and was endeavoring to make lots of money.
Until the realization suddenly hit me – I could not become financially independent if I were to spend more money that I had coming in as income. It does not matter if I earn a million dollars a year, if my outgoings are just a dollar over that, I will never become financially free. I will still have to continue working to maintain my standard of living.
You see, it is just as much about curbing spending and saving as it is to making money. Here are some recommendations to do just that.
1) When we move up the income ladder it is only natural to also move to a more affluent neighborhood. I have seen a number of people making the mistake of “trying to keep up with the Jones’s” at this time.
In fact, they do often go a little further than that. They feel that they need to have a more expensive car than their new neighbors, a better lawn mower and generally want to impress by using money. There is no need to re-paint the house or anything like that.
Remember that these new friends may be have a lot more financial independence than you are yourself.
Instead, seek to be popular by just being humble and friendly, joining in with their activities and you will be accepted.
2) As you become richer and nearer financial freedom, do not fall into the trap of assuming that saving money on shopping and the like does not matter any more.
Earlier in your life you were probably on the lookout for all the coupon deals, BOGOFF (Buy One Get One Free) offers and any store sales that you could find. This should not change. Money is just as important and money saving eating is not only good for your wealth but is normally a lot better for your health.
Of course, one of the advantages of having a lot of cash is that you can eat out at restaurants more often. It is alright to do this as long as you include it in your budgeting and do not do it too frequently.
3) What does financial independence mean to you?
I would suggest that, rather than having a big income, it should mean having a big bank balance. This will give you to freedom to “retire” at some stage and not have to worry about where the income is coming from.
Because of this you have to start saving money into a savings account. It is the only way. Commit yourself to a certain percentage of your profits every single month right from the first time you show a profit. After you have put aside that amount of money and paid your unavoidable utility, food and housing costs you can, only then, think about spending money on pleasure.
I am not trying to stop yourself from getting pleasure from your new found wealth, I am simply trying to assure that you keep as much of it as possible as you never know when you may need some emergency money for something.
By following these simple suggestions you can be well on the way towards financial independence!
Follow me on Twitter here
Like this post? Subscribe to my RSS feed and get loads more!
Twitter: WillenaRose
says:
Wise advice, Trevor! Funny how that works, regardless of where we are on the economic ladder.
A friend of mine says it’s because some of us don’t believe, deep down, that we deserve the money, so we self sabotage by spending it as fast as it comes our way.
I’d never thought of it that way before, but it makes a lot of sense. It’s so important that we work on our self development as we make more money.
Willena Flewelling
Willena Flewelling recently posted..Some Thoughts on Growth
Yes, we always seem to be able to spend however much money we make.
So true, I wouldn’t argue a bit that financial independence is not about making lots of money. Although I wouldn’t mind making lots of money.
But lots of money is a very relative term.
Financial independence just means you have the means to treat yourself to something special whenever you want to, something special doesn’t have to be a yacht. Unfortunately most people follow bad advice and push that 30% of net income can be spent on a mortgage or rent to the max, and thus have nothing left over for savings or fun.
Rusty recently posted..Ultralight Joe’s Moose Goo: Recipes and Variations
Well said Rusty, unfortunately, too often they do choose a yacht or a Ferrari.
Excellent article Trevor! I had a conversation with a friend about this subject just the other day. She said she was giving up on budgeting because she just couldn’t do it – so from now on she was just going to focus on making more money. My response was to point out all of the celebrities we see in the news who make a bundle, only to end up broke or in trouble with the IRS because they couldn’t manage that money. Financial freedom is about being responsible. Thanks for the wise advice!
The celebrities do that because they do not have a budget and just spend, spend, spend…
Great points here Trevor, I really agree it is not about making lots of money. My idea of financial independence is simple: being able to buy what you NEED comfortably, a substantial savings (whatever that may be for you), manageable to no debt.
Jeff
Jeffrey Sooey recently posted..Fitness Coaching Jobs: Stay Active While You Work
One of my definitions is being able to order or buy whatever I want without looking at the price tag.
Most people, in search of financial freedom, neglect to reflect on their expenses. People could be ‘free’ much sooner if they were able to adjust their spending along side of creating wealth.
Debbie
Debbie Lattuga recently posted..Writing to Impact Change – Free Ebook
Yes that adjustment is very important.
Hi Trevor,
This is great advice. Another way to put it is to live below your means rather than above your means. You’ll save a lot more money. Many millionaires are quite frugal with their wealth thus maintaining the habits that got them there and ensuring that they’ll stay there. Thanks for this post.
Linnea recently posted..Shiny Object Syndrome
Linnea, the challenge for most people is they level “to” their means, whatever their means are. The millionaires are not like that.
The important thing is we should work with our self as we make money.
Sarah recently posted..Facebook Should Not Be A Victim Of The Riots
Hi, Trevor!
I am not going to argue with you on this one, as you are completely right. If we spend a cent more than we actually earn, then we can’t speak about having finacial freedom or being financially independent. Yet, many of people are owing to banks-does thaat mean those are also not financially independent?
I understand that making money does not guarantee for and doesn’t mean financial independence. If I would be making lots of money, I would call it a financial pleasure rather than independence.;)
Kristina L. recently posted..BookCloseouts Coupon Code
I don’t think I would consider myself to be financially independent if the money was simply borrowed from the banks.
Treavor,
Excellent advice and I love the part about financial independence. One who makes less money could actually be more financially independent than another making more money but spending up to or past the limit. It is a great measure of one’s wealth planning.
Thanks, Treavor,
RICK
Rick Lelchuk recently posted..Happiness Is The Key
Yes Rick plus the fact that financial freedom means different things to different people.
Twitter: KevinMartineau
says:
These are great tips Trevor!
It is amazing how simple it is yet we make it so complicated – spend less money than you make, that’s it. Or as the SNL Skit out it “Stop spending money you don’t have!”
Kevin
Kevin Martineau recently posted..Make a difference in someone else’s life today!
It certainly seems simple when put that way Kevin.
Twitter: HansSchoff
says:
Hey Trevor, great tips! It’s not about how much you make, it’s how much you keep that’s important! As you say, if you spend as much as you make (or more), you’ll never be financially independent. So just because your income increases your expenses do not have to also increase. Be aware of your income and expenses so that as they go up or down you remain in control and do not become a victim to your spending habits. Great stuff Trevor!
Hans Schoff recently posted..Home Based Income – A Viable Way For Creating Wealth?
Hans, I think that you have made a good point there about remaining in control. I fear that most people never get in control in the first place.
I like your point of #2 that savings remain a key element even when the financial constraints are not present. It’s in having the self control to self limit that our wealth grows over time and can be putting into things that gain us wealth over and over rather than negate from the bottom line.
Kim
Kimberly Castleberry recently posted..3 Google SEO Changes Rattle SEO Experts & Bloggers Alike!
Self limiting and self control are so necessary. It is easy to think that money and wealth will just keep coming.
Advice is well-taken. To be financially independent you have to be confident about yourself. You don’t have to use your money only to be accepted by the people that surrounds you. Also, always live within your means or if possible live below your means and save money.
Yes, you have to be confident in your ability to handle a lot of money Jason.
Hi Trevor,
Excellent post and so true! Our spending goes up with our income and so we are pretty much stuck in the same situation when we had less coming in!
There’s a cool concept I like: 3 buckets. First for security, Second for investments (risky but potentially very profitable) and the third for wants… all those luxuries! That’s not to say that fun can’t be had a long the way but spending all we earn every month is not ideal!
Nice one Trevor
Em
Emma recently posted..MSMC – Redirect After Comment
Right, I am off out to buy three buckets. Wait though, is that in my budget? …..
Solid advice here Trevor!
So many fall into the trap of increasing expenses as their profits increase.
I think a lot of the problem is a lack of basic knowledge in money management.
I think financial freedom comes when your cashflow beats your expenses.
I think success is doing what you LOVE no matter how much money it brings in!
Great post Trevor! HUGS!! -Ro
Roshanda Gilmore recently posted..How To Produce An Endless Amount Of leads Into Your Business – DAILY!
Ro, that is what this blog is all about – helping people get a better understanding of managing money.
This post reminds me of the method called “living below your means”. People are so afraid to do this. They worry more about they social standing, then their own social comfortness. Like when people make more money , they tend to spend more money to match their income. So in reality they are just as broke as the person who makes less then them. Because they are still trying to make ends meet. What if you stay at the same lifestyle level with your pay increase, which is living below your means. You may not have the great things that you dream about, but your stress level would drop. This is due to the point you are not racking your brain with the thoughts of “how am I going to pay for this, and this and that”? So financial independance is not how much money you have, but how much need to live a comfortable lifestyle compared to how much money you do actual have. This is a great post
MarcusTCox recently posted..Making false realities
Marcus, you have picked two points totally. It is often social and peer pressure that encourages people to overspend and someone earning 100,000 a year and spending 100,000 is further from becoming financially free that someone earning 50,000 and spending 40,000.
Twitter: steveborgman
says:
Love your last reply, Trevor, and your article in general. I’m working on becoming a lot more disciplined with tracking money, and with spending less than I earn. Some say, it’s not what you earn, it’s what you keep. My idea is to focus on generating more value and more income while learning to save more at the same time.
Steve-Personal Success Factors recently posted..Secrets of Life and Death
Keeping more of your income is certainly a difficult learning process for a lot of people.
Trevor,
Thanks for the information. My family is trying to implement better money habits. One of those methods is expenses. A lot of times, it is difficult to adjust our income… especially quickly. The only other way is to adjust expense. We’ve been watching the Suzy Orman show a lot recently and her advice on “Can I afford it?” is very telling. Thanks!
Gary Young China Sourcing recently posted..China Sourcing and Protecting Intellectual Property- Part Two
Gary, being careful with expenses can’t be easy if you have lots of trips to China…..
Trevor, I was just talking to my son about this exact topic about an hour ago. He was telling me about a friend who is making over $100K per month and being just struggling with debt. I personally had to learn the hard way to manage my finances, but it was so worth it; there is no price tag for it. I appreciate what you are doing, teaching and mentoring people on money management. Having a healthy Money IQ, makes life so enjoyable.
Hi Trevor,
Some really solid, foundational information here. Used simply as the tool that it is, money can be used to serve our needs; and used wisely, it serves to not only look after us, but builds so that we can extend it’s service way beyond ourselves. Knowing how to spend wisely at all levels of abundance, discovering financial resources, investing in our future and that of our families are acquired skills; once learned, it doesn’t matter how much we have, we stick to the same wise patterns and habits. Output beyond input just means the skill has not yet been learned. Abundance is a wonderful thing that we can embrace wisely.
Loren recently posted..Link Building for Success
Wise patterns and habits, how to spend wisely and money serving our needs. You understood the article perfectly Loren.
Twitter: edytazabielska
says:
Hi Trevor,
Very interesting advice. I agree that we need to be humble with our money but at the same time I think that the relationship we have with money is very important. We can be happier if we can share our wealth with others, spend money for others, not only for ouselves.
Edyta recently posted..Drink Chamomile Stress Tea To Get Relief From Stress
A strange thing about getting wealthy is that we do start to share the wealth around with others, sometimes without even realizing it. We buy more expensive cars which shares the car salesman, we go to restaurants more which shares it with the staff there and so on.
I really appreciate your professional approach. These are pieces of very useful information that will be of great use for me in future.
payday uk loans
Twitter: seogene
says:
I don’t believe that there is only one level of financial independence. There are many. There is an FI where you have all you need to pay the bills without working for money. But there is also an FI where you can do the same with many more luxuries. And there is an FI where you can not only live in luxury without having to work for money but can also give to charities or your heirs or build new businesses or be more creative. As we become a richer society, it becomes easier to hit the basic level of FI. I think it is part of human nature always to aim higher.
Emily Morgan recently posted..Fast Short Term Loans – Cash Online In One Hour