Thursday, January 31, 2013

Becoming Financially Independent

It took years to get to the point where I could even begin to consider breaking free from my regular job. Getting to where I was financially independent enough to consider such a move took a lot of time, effort, and sacrifice. Even then, it was a tough move to make since I realized that there were a variety of fantastic advantages of working for a regular employer; however, someone like me, who enjoys independence, sometimes needs a little more control over their working world. This is how I managed to gain that control.

Combining Incomes and Living off Half of One
Back when my wife and I were both working regular jobs, and both had decent incomes, we made a conscious decision. In an effort to achieve our financial goals, and in hopes of one day becoming financially independent from those jobs, we lived off of about one half of one income.

This did several things for us. First off, it taught us just how little money we needed in order to maintain a reasonable lifestyle. This meant that when we decided to move into careers that gave us more freedom but paid less, it didn’t come as a shock and our lifestyle wasn’t significantly altered. Second, it allowed us to save a large portion of our income as a financial reserve in the event that living financially independent from a regular employer didn’t pan out the way we’d hoped.

Getting Debt Free and Staying that Way
We’ve been in debt a total of three times in our lives. Two of these times were for student loans, both of which we paid off in under three years, and the third was for our first mortgage, which we held for about three years before downsizing and becoming mortgage free.

Otherwise, we have kept debt virtually non-existent. Doing so has allowed me as a self-employed individual to save more of a lowered income and avoid extra expenses in the form of debt interest payments. By eliminating such costs from our lives, it minimizes the number of bills coming in on a regular basis and maximizes the opportunities for the income we make, thereby making it easier to maintain a financially independent lifestyle.

Tracking All Expenses
I track all my expenses. And when I say “all” I mean all. From the monthly utility bills and condo association fee, all the way down to our five-year-old son’s .25 cent weekly allowance, I put it on a spreadsheet. This has provided me with the information necessary not only to cut costs but to know how and where I’m spending, giving me the data to make financial planning decisions and know just how much I need to earn to maintain an independent status.

Forecasting Well in Advance
When it comes to forecasting, I don’t just forecast months in advance, but years. This forecasting is important in both the income and expense realms as it can help me get a general idea for longer-term planning when it comes to items such as college for the kids and retirement for me and the wife.

Understanding not only the individual sides of these two financial elements, but the variance between the two is essential for me to gauge our financial progress. In essence, it tells me whether I can sustain my financial independence and how successful I’m being in doing so. Forecasting acts as my financial gauge for the past, the present, as well as for the future, and it helps me pinpoint where and ways to change as well as success rates.

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