This is Step 5 in the 5 Part Series, How To Achieve Financial Independence
Review of The Series
I hope you’ve enjoyed reading the first 4 steps in this series. Of course, once you’re finish reading all 5 steps, you will need to make the decision whether to put them into action or not. The goal of this series – and even this blog – is to provide you with solutions to everyday personal finance matters. The main objective is to teach you how to achieve financial independence. Before we get started with Step 5, I want to share a quote with you that I heard today. It doesn’t need a lot of explanation:
Everything you desire is outside your comfort zone – otherwise, you would already have it.
Step 5, Accelerate Your Income and Build Personal Equity/Wealth
Step 5 is all about building your personal equity or your “net worth.” There is a reason I made this the final step in the series. A lot of people get tripped up because they try to reach “millionaire” status by taking short cuts. You may have heard stories of people living off of their credit cards to build their now successful online business empire. Or, maybe it was that they spent their last $499 to buy a Forex trading program. While there are exceptions, most of these stories are grand exaggerations and will just delay your achieving financial independence.
Once you get to Step 5, you will already be earning more than you spend. You will be debt free and hopefully, you’ll be doing something you enjoy, where you’re considered an expert. Those concepts work long term. They aren’t going to go out of style anytime soon. I want to leave you with 5 very simple and powerful strategies for building and maintaining your personal equity/wealth.
5 Ways To Build Your Personal Wealth and Accelerate Your Income
1) Maximize Your Personal Retirement Accounts - This would include fully funding your 401(k)s, IRAs and/or Roth IRAs. Here is a link to the 2010 Roth IRA Contribution Limits
2) Establish a 1 Year Emergency Fund – Common wisdom is that you should establish an emergency fund of 3-6 months of living expenses in case you get laid off or experience an emergency. I can tell you that while 3-6 months is not a bad idea, it simply isn’t enough if you want to achieve and maintain financial independence. While it’s true that 3-6 months will hold you over for a quarter or two, you have to remember that life is full of uncertainties. The main reason you have an emergency fund is psychological; it’s peace of mind. Now imagine you only have 3 months of expenses put aside and you’ve been unemployed for 2 months. ”Tick Tock” Those credit cards are going to look pretty appealing in a couple weeks. This doesn’t have to be something you do this year. It can be a long term goal. Again, the “dividend” here is your family’s peace of mind, not investment return.
3) Properly Insure Yourself- I can not stress the importance of properly insuring yourself. Do not spend your entire life creating financial independence just to have one of life’s events wipe it out. A while back, I wrote a post called What Types Of Insurance Your Really Need. Please read this and make sure you and your family are properly insured.
4) Invest in Yourself and Educate Yourself – This step is little more than a cliche. It’s a fact that the most successful people are constantly learning. Why? It’s simple; people will pay you for what you know.
5) Start an Online Business - We’ve all heard stories of people making millions online. Have you ever thought to yourself “HOW?” Let me just tell you that while I believe anyone can learn how to make money online, it rarely if ever happens fast. You need learn certain skill sets and understand how things work online. I wrote the following post to explain How To Make Money Online For Beginners
I hope you have enjoyed this 5 part series for achieving financial independence. Remember the following quote from earlier:
Everything you desire is outside your comfort zone – otherwise, you would already have it.
Here are the 5 Steps For How To Achieve Financial Independence
Step 1 Earn More Than Your Spend
Step 3 Accelerate Your Savings
Related posts:
- 5 Steps To Achieve Financial Independence, Step 3 – Accelerate Your Savings
- 5 Steps To Achieve Financial Independence, Step 2 – Get Out Of Debt Now
- 5 Steps To Achieve Financial Independence – Step 4, Become An Expert In Something You Love Doing
- How To Achieve Financial Independence
- Why Most People Never Reach Financial Independence
“Maximize Your Personal Retirement Accounts”
Yep, and for Canadians that means maxing out RRSP and TFSAs. For younger people I would recommend doing those two before doing the mortgage, though it does depends on what your goals are and what your rates are.
“Establish a 1 Year Emergency Fund”
If you don’t have that much invested, it might be better to invest the 1 year fund and then have a line of credit against it. Ideally, you never want to use that line of credit, but while you don’t need to use it your money is doing more work for you. There is more risk to doing this and I would only recommend it for younger people with the discipline to not actually touch the credit, and with little other investments. What do you think?
“Properly Insure Yourself”
Yep, with decent insurance it should be rare that you need to actually touch that emergency fund.
“Invest in Yourself and Educate Yourself”
Nothing more important than this over the long run.
“Start an Online Business”
I’m going to read your post, because I can tell you that I’m certainly not blogging for the money
Hi Kevin,
You know what is funny? I never would have thought I’d want to have 1 years worth of expenses “laying around” in something as idle as “cash” However, about a year ago, I began researching high interest checking accounts, rewards checking, etc. and was able to find 2 top of the line rated community banks that actually pay 4% interest. The interest aside, the real dividend for me is knowing I have that money “in my back pocket” should I ever need it.
Hey Mike,
That’s an awesome interest rate: 4%. Here in Singapore, I believe the highest rate is less than 1% for a high interest savings account–unless you commit to a decade or more, then they’ll pay you about 3.5%, without the flexibility.
This is a great post Mike.
Cheers,
Andrew
Hi Andrew,
Yea, sometimes I am surprised these community banks are able to pay 4%. I have 2 rewards accounts (one 4% and the other 3.33%) not bad!