Financial Independence

Financial Independence lessons learned. Learn from the top one 1%

Financial independence can be achieved by anyone. Learn from the top 1% of people who have made efforts to grow their skills, assets and financial IQ. Read on about mindset, goals, planning, execution, and improvement. This post is based on over 1000 answers to my financial IQ test. I have looked at top 1% people and described what they have in common. Enjoy reading and make sure you share this answer over your favorite social network. Thank you

Financial independence requires you to have the right mindset – Those who work whole day have no time to make money (John D. Rockefeller)

What you are and what you become depends on how you use your time. Each person in the world has 24 hours a day. You cannot stop time. You can control how you use time. Set your mind to financial independence and stop trading time for money. Top 1% people who have scored best results in the financial independence IQ test share two major things in common.

They all own assets that pay cash every single month

First of all, the 1% know that in order to reach financial independence they need to come up with a plan to stop trading time for money. In order to achieve that they invest their money in assets that pay them cash every month. Many buy real estate and make passive income online. You can find your own way to generate revenue that is not directly related to your time investment. In the beginning, it will get tough as you will probably still need to work 9-5. It is a small price to pay for achieving your financial independence.

They all make constant efforts to learn new skills

Secondly, the 1% know that one of the greatest assets that you can have is you. This is why most of them invest in their skills and knowledge. One additional thing that separates the 1% from the rest is that they constantly look for opportunities to get out of their comfort zone. They know very well that progress is key to financial independence. As soon as you settle in your comfort zone you lose.

Set financial independence goals – Setting goals is the first step in turning the invisible into visible (Tony Robbins)

Now that you have the right mindset on achieving financial independence you need to set your goals. How are you going to do that? What is required? Make sure it is all ambitious. You need to leave your comfort zone to progress to financial independence. I have used an approach to goal setting that takes into consideration three components. Working on those three elements at the same time will multiply your results and kickstart your journey to financial independence.

Time – you need to schedule time to work on your financial independence

Before you set a revenue goal, think about how much time daily (on top of your regular job) you can invest in building your financial independence. Make it a habit of investing at least 2 hours a day executing on your dreams. Make sure you schedule this among all your other activities. Baby steps count. You need to have the discipline to achieve something greater. It does not matter if you decide to invest in real estate or an online business or anything else. It will take a lot of effort to make it right. You will not be able to find a great return on real estate if you only looked at 5 properties. It is impossible to build an online business without delivering valuable content and engaging with your audience. In the beginning, you will need to do it all on your own until you grow and hire others to do it for you.

Revenues – you need to understand how much passive income you need to achieve financial independence

Now that you have scheduled the time to work on your financial independence think about a number that you want to achieve in your first year. Make sure it is ambitious but also achievable. Say, you want to cover 15% of your fixed expenses from a passive income source in the first year. The difficulty of this task will naturally be related to the amount of fixed costs you incur annually. This is why your next point of focus is setting expense goals.

Expenses – you need to make a habit of controlling and reducing your fixed expenses

Next thing you must do is to work on the expense goals. It is as much important to achieve financial independence as setting revenue goals. Set an annual goal to cut your expenses by 15%. Doing that will give you extra funds before your passive income kicks in. Make sure you invest those extra funds well. Learn a skill that is needed to build your passive income, pay down some of your debt, make reserves. Make all the smart financial decisions and remember that victory loves preparation. I have shared more about expenses in this previous post It is not salary that makes you rich it is your spending habits

Key financial independence metrics used by the 1%

Finally, you need to start looking at some key metrics that are used by the 1% of those who successfully build financial independence. Based on over 1000 responses to my financial IQ test the top 1% people agree that the three key metrics that you need to improve over time are: debt to income ratio, fixed expenses to income ratio and investments to income ratio.

  • debt to income ratio – financial independence does not necessarily mean that you are debt free. One of the reasons is that there are different types of debt. Some debt may drag you down other can significantly accelerate your journey to financial independence. Irrespective of the type of debt you carry you need to always understand how much in percent your annual debt payments are in relation to your net income. You will probably not want to see this metric greater than 25%.
  • fixed expenses to income ratio – another metric that is closely observed by those who achieved financial independence is how much they must spend on fixed expenses in relation to their net income annually. When we include debt payments discussed above you will probably not want to see this metric to be more than 35%.
  • investments to income ratio – finally the most important metric that is a consequence of the two previous ones. How much you invest annually compared to your net income. Do you choose an easy road and let other people manage it or you make your own decisions and build financial independence on your own. How much of your investments give you additional cash flow?

You can also read more about bad debt here: Bad debt your number one enemy  One other post that is worth reading: How rich people use debt?

Plan your financial independence – A goal without a plan is just a wish

A plan does not only tell you what to do. More importantly, it tells you what you must avoid. The key to success is to have a clear plan. Now that you have set your goals and you know what you want to achieve in terms of financial independence it is time to think about how you are going to achieve it.

Time planning – you need to understand where your time is invested or lost

It all starts with understanding how you use your time every day. I suggest you took notes of what you do for one week to get a sense of where your time is invested or lost. You need to be able to categorize what you have done this weak into at least the following categories:

  • work time (including commute)
  • exercise time (gym or any other form of physical activity)
  • family time (anything related to keeping your family happy)
  • sleep time
  • wasted time (binge-watching, social media, gaming)

Take a look at your typical week now and make time for building financial independence. Look at the low hanging fruit. Eliminate binge-watching, cut your social media activities and stop gaming. Use that time to work on your own goals. Stop being a viewer. Viewer pays, players get paid.

Revenue planning – always be open to look for new revenue sources

I have this habit of brainstorming revenue opportunities every single year. Let me tell you how this works. I already know my annual revenue target. What are the next steps?

  • Step one – think about your annual revenue target and write down ten opportunities that you have in your mind to achieve it. There is the world of opportunities out there. Think about freelancing or review some ways to make income online. Have a look at what you already own and if you can turn it into a source of passive income.
  • Step two – organize the list of opportunities. Look at the ones that are most probable to be achieved within one year. As soon as you understand your chances, look at those few top ones that have the greatest revenue potential.
  • Step three – plan victory around actions, not the target itself. Now that you have your top opportunities selected think about what actions you need to take today, following week, next month and this quarter to progress. Write down those actions.

Expense planning – make it a habit to review your fixed expenses regularly

Expense planning – another financial independence habit I have is to review my fixed expenses every year and look for ways to reduce them. When have you last reviewed your contracts with utility suppliers to see if you can renegotiate a better price or cancel some of the options that you currently have and do not use? How often do you review your contracts with utility suppliers? Here is a quick win:

  • Firstly, make a list of all your recurring payments
  • Then, note down when you have signed/ amended the contract
  • Step three, note down what is the annual charge
  • Finally, make a phone call, renegotiate, cancel or change

Make sure you execute those four baby steps within one week. You will immediately start seeing more cash in your bank account. But that is not all. Now, use this extra money to learn a new skill or use it to pay down some of your debt. Make smart spending decisions that will accelerate your journey to financial independence.

Be willing to execute on your financial independence goals – Discipline is the bridge between goals and accomplishment (Jim Rohn)

It is not the smartest people who achieve success. It is the ones who procrastinate less, make fewer excuses and take action every day towards the goals they want to achieve. By now you have set your mindset to stop trading time for money. You have also set goals. You even made plans to succeed. Now you need to make working on your financial independence a habit. You need to work on your discipline. It might require changing some of your current habits and will definitely require stepping out of your comfort zone. Do not get discouraged. When it is evident that goals cannot be achieved, do not adjust goals, adjust actions.

A vision without execution is just hallucination (Henry Ford)

Everybody has the desire to do something. Most of us do not have the discipline to achieve it. Everybody wants success yesterday. People want to achieve the convenience of success without the inconvenience of making it happen. Economists come up with theories that are true, inspiring and work as a rule of thumb. Most of us take those theories and try to start a business, invest in real estate, build an online business, etc. In theory it should all work, in reality, 80% of businesses fail in the first year of operations. Why?

The 1 % know very well that to make a theory work it requires versatile skills. They know that a good idea executed today is worth much more than a perfect plan never implemented. Economists seem to overlook the execution part of their theories. I have seen those theories somehow disconnected from today’s complex, fast-paced and globally distributed world. Theories are based on formulas; execution is based on skills and habits. It is not the smartest people who reach financial independence. It is the people who procrastinate less and take actions every day towards the goals they want to achieve.

Financial independence is based on Self-improvement – the secret of change is to focus all of your energy not on fighting the old but on building the new (Socrates).

The 1% focus on progress. They constantly put themselves out of the comfort zone. They are forward oriented. Lessons learned are important for them to be better in execution today and tomorrow. I suggest you reflect on your annual achievements and failures. Think about what was great and what turned out to be a failure. Do not get discouraged by failures. They are the greatest source of progress.

Further inspirations for financial independence

One final thing I wanted to share. You need to become skilled at making, controlling and safeguarding your money. You need to start working on your financial IQ. This will help you to understand money, make money work for you instead of you working for money.

Click the link to get more inspiration and start changing yourself today. Take the test today

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