This piece on introduction to financial independence is written to share some of the most basic things that I have done to secure my financial independence. There are things that only we can do for our self.
One of those things include financial management. It does not matter your: profession, educational background, how much you have etc., the truth is that finances are the life blood of every Human being and must be treated with care.
It is not my intention to bother you with some accounting technical terms here. My utmost faith is to see you take action that will better your finances or at the very least improve your financial health for good. Listed below are some of the skills you need to become your own financial manger.
Things You Must Do To Gain Financial Independence
For you to become your own financial manger, you cannot do away with being disciplined. Being disciplined helps you in the area of consistency. Every accountant out there knows that consistency is a (principle/convention/theory) that is highly valued.
Do not be an impulsive spender. I have told my personal finance clients that one sure way of beating irresponsible spending is to have a little diary in their pocket where they record every single penny they spend. Alternatively, you can rely on some business technology like financial tracking app to keep track of your expenses.
What this will do for you is to make you be in a position to make comparison between different time frames. For instance, how do you know you over/under spent on certain item(s) in the previous month if there is no yardstick for doing such?
Learn The Art of Budgeting
This is not a difficult thing to do; is as simple as saying; Hey Guys, I want to spend Fifty Thousand Naira this month. But wait a minute, do you think is enough to just say it? The obvious answer is NO. So, put it down in writing. Is that a difficult thing to do?
Master Record keeping and Develop Analytical Mind
Hey! Don’t go shivering by my mentioning these ‘mathematical” sounding words. I don’t mean you should be sophisticated in this regard. A simple diary (like I mentioned above) can do the job perfectly well. What you need to do here is: get a portable diary and pen and make use of them to take note of all your expenses (both minor and major).
This is very important if you really want be your own financial manager. The importance of accounting in personal finance can never be stressed enough. REMEMBER TO BE DISCIPLINED. At the end of every period (monthly, weekly, daily), compare your budget i.e what you said you want to spend and what you actually spent.
Again, write down the difference and constantly remind yourself that you didn’t meet a major task required for you to be financially free eventually.
Imbibe Rewarding/cautioning attitude
This is the time to take ACTION. I must warn that you need to be objective at this point. Don’t be lenient because you are dealing with yourself. Be objective.
OK, if at this point you get a favourable variance (difference between actual and budgeted), pat yourself at the back and and say “Truly I am a financial manager”. If on the other hand you get an adverse variance, find out the reason for the variance and if you happen to be the cause, CAUTION yourself. learn to be disciplined.
Gradually Pay Off Your Debts
Start by agreeing a sustainable repayment plan those that you are indebted to. Again, remember the first point of being disciplined. Transfer the outflow of a fully repaid debt to another debt and watch the magic as it unfolds.
Example – Say you have debts A, B, C and D of $100, $1,000, $1,500, and $3,000 respectively. You agree to be paying $50 to each entity you are owing each month – $200 out flow each month. Your indebtedness to A would be fully repaid in 2 months.
Do not blow your trumpet and start accumulating more debts. Rather, transfer the $50 that was supposed to go to debt A towards making extra repayment of debt B. And debt B is fully repaid, transfer $100 (i.e debt A & debt B original repayments) towards repaying debt C.
Start Multiplying your Wealth
One of the key ingredients of gaining financial independence that is often overlooked is the aspect of using the little money that one has managed to save for productive ventures. Money in the bank can only do so much. The advanced nature of technology has completely democratized the investment ecosystem.
One can with the click of a button place order for investment of any amount. Have it at the back of your mind that attaining complete financial independence status that you so much desire will not be complete if all you do is be frugal and then save the money in a non interest yielding account.
I want to assure you that if the above simple, yet powerful steps are taken, not only will you become a financial manager of ‘You Incorporated’, your financial position will take a different shape and you will be better off in the long run.
You may want to get the service of an investment accountant to assist you in managing and growing your wealth if it becomes too much for you to handle. Read my post on how to source for an investment accountant for tips on how to go about finding an investment accountant.