10 key concepts to understand and achieve financial independence

With everything that is going on around us at the moment, we can sometimes feel powerless, consumed by world events, scared by swings in markets and fearful of the short term.

We should remember however that our financial future is something we can always actively shape and influence. So it’s important to step back from the daily noise, and focus on what we can control rather that what  is out of our hands. If we are still accumulating wealth, our ultimate investment goal is always crossing the financial finish line and achieving Financial independence.

What however does Financial Independence actually mean? And what are the best ways of achieving it?  Here is a short refresher with 10 key concepts.

  1. Financial Independence is a state of “self-sufficiency:  It’s when you have enough money and assets that you and your family can live comfortably for the rest of your lives- WITHOUT needing a job
  2. Financial independence is not about spending money how we like, it’s about being free to spend our time how we like.
  3. It’s not about quitting our jobs and retiring although that is certainly possible. It’s about being free to pursue whatever kind of work or activity we find most fulfilling.
  4. For most of us, the only way to reach it is starting early, saving diligently and investing responsibly. But if we haven’t started early the second best time to start is right now.
  5. It’s hard for us to become independent on just our salary we need to find other ways that keep paying us for life. The easiest way is business ownership by owning the stocks of global companies and benefiting from their earnings and growth.
  6. Frugality is a virtue. We should strive to keep our expenses below our income . Frugality does not mean cheapness. It means wanting value for money.
  7. What gets measured gets fixed. We need to dedicate some time regularly (at the very least every year) to go over our progress towards Financial Independence and make course corrections as necessary.
  8. Avoid Lifestyle Creep.  This means spending lots more as you earn more. The more we spend, the less we have to invest and the more our portfolio has to provide. But also if suddenly we start earning less then we have to forgo our new lavish lifestyles.
  9. Humility – In the short term luck plays a big role in investing. We should acknowledge this and not take all the credit. There are only two kinds of investors- those who are humble, and those who will be humbled by the market
  10. We only need to get rich ONCE. If we’re fortunate enough to come close to our goal, we should try to be careful not to lose it all. This means good diversification. Good risk management with some downside protection for the short term.

If you like to find out more about creating your very own financial plan, please get in touch.

Please note

This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.

The value of investments may go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance.

 

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