Financial Independence

Boil the concept of money management down to its most simple elements, and you must do three things:

  1. Spend less than you earn.
  2. Get out of debt.
  3. Stay out of debt.

It doesn’t get much simpler than that. And yet, those three concepts can be exceptionally complicated.

Nonetheless you have to do them. There is no other way to become financially independent, short of winning the lottery or some other sort of windfall. Even still, although by some lucky stroke you might get rich overnight, if you fail to understand and practice basic financial management principles, chances are, you will not be rich for long.

Each of the three must be done in order. You cannot stay out of debt until you’re out of debt in the first place. You cannot get out of debt until you spend less than you earn.

A fundamental truth in money management, and one far too often overlooked, is that you cannot save money until your debts are paid. You may be tucking away money in some sort of savings vehicle while paying minimum payments on your credit card, but your net worth – assets minus liabilities – will always be reduced by the amount of debt you have. What good is it doing you to sock away money for retirement, kid’s college fund, or a vacation fund, when the most basic elements, namely spending less than you earn, being out of debt, and staying out of debt, are not met?

You will never be free of financial worries until you accomplish the three goals of spending less than you earn, getting out of debt, and staying out of debt.

Advertisements
Leave a comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: