Personal Finance

How to achieve Financial Independence?

financial freedom

You wake up one morning, you are not in a rush. Your shower and personal grooming is at your pace. Your family is just also getting up and you have time to snuggle and hug them. Breakfast is served in a dining room and you walk there to join family in stuffing yourselves with nutritious delicacies. You leave your house in time to attend to business that you had pre-arranged at your terms. This is how financial independence looks like in the morning.

During the day, your better half drops by, you blind fold her and lead her to the world map globe in your office, you ask her to spin it and point her finger somewhere on the globe. That is your next holiday destination and you have no qualms about it, tickets are booked by the agent as soon as possible.

When you are financially independent, money is not a motivator anymore. You have enough to sustain you and family and to also help around.

As a woman you are not all over your husband about money. You are not stalking him to the office to get money for food or other necessities, but rather whether he gives you money or not, you will cook food for the family and recover from him at the appropriate time after dinner wearing appropriate lingerie. This is financial independence in the evening.

Income sources and living expenses vary greatly among individuals. It is not easy to pinpoint one income or expense level and conclude financial independence.  In any case financial needs are evolving and increasing daily. In the journey to financial independence, managing both incomes and expenses is paramount. However, ability to earn more income carries the day.

Income sources are innumerable; in fact, so many other types are waiting to be discovered by creative’s and curious minds. In a recent blog titled Why you should diversify your income we listed many income sources, it is important to delve a little more into those types and discuss what we can do to earn some of those sources.

Active income is income that requires our continued involvement in order to earn it, these include employment income, business income, performing fees and rental income depending on whether you have outsourced the collection or not.

Investment income , copyright income, patent income, leases, mining rights can be said to be passive because they involve a onetime big effort and or outlay and later on very minimum involvement is required.

To diversify income, start early and the point of leaving college or university is the best time to maneuver through this murky world of income. Depending on your background, you may have to start at nothing. You have to stay with relatives in urban centers as you job hunt. You are lucky to land your first job, whose pay is usually not as you expected, but you really don’t have many choices. However, you blow your first salary, thanking yourself for the struggles you have endured in school and on tarmac by entertaining friends and the next day you have zero money which puts you at loggerheads with the relative that is hosting you and with the souring of those relations, you are forced to move out, which starts the cycle of borrowing and barely just crawling through life.

If by the time you receive a first pay cheque, you have a robust earning and spending plan, you can craft a budget plan to have your money work for you and increase and diversify your income streams.

Let us consider a certain Helden who has just left university and landed a Kes40K. He has been staying with relatives and therefore has little or no debts. He can easily negotiate with the relative to allow him to stay slightly longer in order for him to save the rent and living expenses that he can incur if he were to move out immediately.

In most hustler estates, the living expenses will easily amount to Kes20k. With the right courage and discipline, even saving Kes20k for one year will amount to Kes240k, which we can now use for income diversification. The remaining Kes20k, he can use like Kes6k for fare and lunch to job daily, and the remaining for taxes, entertainment, airtime and support to host.

A Helen who cannot stay with relatives can choose to move out and instead of putting up alone can put up with friends, and again with the right discipline, she may use the Kes40k differently, instead of paying Kes20k for living expenses, they can split the costs with friends to cost each less than Kes10k. If her other expenses are Kes20k, she has a saving of Kes10k a month, easily amounting to Kes120k a year.

The differentiator between these two individuals will be in how they use their free time and the skills they acquire during this year. It’s easy to fall into the usual rut of work, entertainment, home, work, and entertainment again, however, by scheduling your activities and operating within a budget you can increase your earning potential a hundred-fold.

In fact, after getting home, I have seen young people who then pick up jobs online and are paid for it, while a majority of course will be catching up with friends at a local joint or watching TV for very long intervals. Using the free time to assess and improve your skills, discover a new source of income and or practice a talent is key to ensuring that you will be rich.

If these two individuals were both spoken word graduates, and Helen decided that on weekends instead of just resting on the sofa she will find opportunities to master of ceremony (MC) in events, definitely in a year, a part from her being a sharper MC, she will have earned more income than her compatriot. Better still, if she decided to write a book about it, she will start earning copyright income.

Helden and Helen have some money by end of year, if they invested this amount into an investment vehicle returning a compound interest of 12% per annum, they would have three times this original amount in ten years time. That’s the essence of passive income, working for it once, and then it works for itself afterwards.

The key to diversification is starting early, staying focused, disciplined and consistent. Mediocrity and complacency must always be punished in the world of money, therefore remember your excesses, non action and extravagance today of both time and money must be punished at sometime in the future.

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