Making Yourself Financially Independent Isn't Lucky - It's Planning

If you want to accomplish something, you'll invariably need a plan - an effective plan. Most people think becoming financially independent is a pie-in-the-sky happenstance for those with high incomes, lottery winners, and lucky investors. They're wrong.

With commitment and a mindset, it's within reach of most. In this article I'll map out a way that almost everybody can achieve financial independence if they put their mind to it.

If you lost your job, could you live on your savings or assets without going through them - i.e. live only on their earnings? If you can, then you're financially independent. You can see that financial independence depends on you - what your living expenses are or what income you really need.

Impressed? ...Well, what's the benefit of achieving this kind of financial independence?

It certainly relieves you of a lot of the stress of losing your job. But it also gives you the financial freedom to develop yourself more, pursue some special hobby you have, or enjoy life in other ways. You can speak more freely about your ideas. You're free of the 'strait jacket' that so many people are confined to - job and opportunity wise. Allows you to help others you ordinarily couldn't. And it may be your ticket to keep your freedom - to preserve your liberty.

Those aren't bad benefits. In fact, achieving financial independence - no matter what level you choose to live at if you choose not to work- is highly responsible to both yourself and yours. And what's surprising is that it's 'doable' if you commit to it.

But first, let's consider your working income is $50K per year and you are living on your income. You'd be financially independent if you had savings that earned $50K per year. If those savings earned 5% per year, then you'd have to have $1million to kick off $50K in earnings.

Of course, if those savings earned more like 10% per year, you'd only need $500K in savings. Or if you could lower your living expense - perhaps by moving offshore - so you only need $30K in earnings, then the amount of savings you need would be less too. That's your choice.

Maybe you're approaching retirement and have some social security benefits to contribute to your nonworking income; and, perhaps, a pension to add more. Then you'd need your savings' earnings to make up whatever additional income you need.

So how do you grow your savings so you can be financially independent? You must commit to three actions that will grow your savings to whatever you need from your working income:

1. Always contribute a fraction of your income each year to your savings - 10% is good. But you should be considered that your yearly minimum.
2. Always work hard to make your savings earn too. Aim to make them earn about 8% per year for compounding your savings.
3. Always protect those savings from being taken or used up for other purposes.

If you do so, with the numbers suggested, you'll achieve financial independence in about 30 years if you start from nothing. But you can reduce this time-to-independence considerably if you:
* contribute more each year - the earlier the better
* earn more on your invested savings
* have accumulated some savings to begin with
* have pension or government benefits that can reduce the need for 'savings' income
* can find a lifestyle that allows you to live well at much less living expense

Where people fail to achieve financial independence: Often they're simply not aware how achievable it is if they stick to the program - so they don't. Saving only 10% of your salary is not a huge sacrifice when you consider the benefits it'll bring you. Those that do contribute to their savings neglect to make those savings earn what they should. Contributing is not enough, the majority of your savings growth must grow from its earnings - reasonable but not meagre earnings. Historically, stocks and conservative real estate investments in home ownership and rental income property can be shown - over long times - to supply better compounding rates than the 8% mentioned above.

Investors often settle for poor earnings by paying too many fees, too much tax, and not positioning their savings into investments that can earn more for them. They think that's someone else's job. They're wrong. It's their job - an important part-time job.

Lastly, decent people on their way to independence are caught off guard by not protecting their growing wealth. Not holding the correct insurance can make them vulnerable to loss due to accidents or health problems. But they also didn't take some asset protection strategies to guard against unfair lawsuits.