The First Step to Financial Independence

The first step to financial independence is to know where you are right now.

You have to know where you are before you can plan where you’re going. With finances, it’s more than just knowing that you have 2 checking accounts, a savings account, and 3 credit cards. It’s important to have complete clarity on every aspect of your financial life in order create plans for achieving financial independence.

I have 4 simple questions that will help you figure out exactly where you are in your journey to financial independence.

  1. How much time can you buy?

    If you lost every source active income income right now, how long could you last without changing your lifestyle? 1 week? 3 months? To figure this out, you need to know how much you have in liquid assets.

  2. How much monthly passive income do you need to reach financial independence?

    This is easy, it’s simply how much you spend per month. So if you spend an average of $2000 a month, then you need $2000 in passive income to be completely financially independent.

  3. How much passive income do you make?

    Do you have a rental property? Investments? How much money do you make that doesn’t require you to exchange time for money? Total it all up and you have your passive income.

  4. What’s missing?

    You know how how much you have in liquid assets, how much passive income you make, and how much you still need. So how much is missing? If you have $10,000 in a savings account, spend $2000 a month, and make $500 a month in passive income then you’ll have to dip into $1500 of your savings per month. You’ll last about 7 months before you run out of money. Once you increase your passive income by $1500, you’ll officially be completely financially independent!

Any time you have changes in your finances, repeat this exercise to see your progress.

“The majority of people, the people going into work and never really breaking out of the cycle, they are selling their time. But the people who understand the prosperity formula and understand that finance is a game of buying time, they don’t sell their time, they buy time.” -Lewis Mocker


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