The Secret to Becoming Financially Independent

Financial independence is a goal for many people. The feeling of not having to worry about money is one of life’s ultimate goals. Many people think the secret to being financially independent is to make more money, but I would argue that many rich people don’t feel financially independent. The true secret to being financially independent is from having an overwhelmingly large amount of discretionary (or free) money at each paycheck. That’s why more people dream about winning the $5M lotto than actually trying to earn that much money. The lotto represents all discretionary money. But then this same principle hurts lotto winners as they reduce their discretionary money by increasing the amount of liabilities (bigger houses, expensive cars, the “entourage”, etc.).

The best way to become financial independent and to increase your discretionary money is to track EVERYTHING that you spend for a whole normal month. Take an ordinary month, with ordinary income and expenses, and then keep track of everything that you spend for the entire month.  Once you have done that, you will be able to see exactly what you can change to get more discretionary money.  If the minimum payments on your credit cards are high, then start paying those down to reduce the minimum payment. If you don’t have much wiggle room, then you can save on variable-fixed expenses like gas, groceries, dining out, entertainment funds, etc.

Here’s a sample scenario:

Income	Amount($)
Paycheck	$3,000
Expense	Amount($)
Mortgage/Rent	$1,300
Utilities	$300
Groceries	$400
Car Payment	$250
Insurance	$100
Gas	$150
Credit Card Payments	$100
Total Expenses	$2,600
Total Discretionary	$400

$400 a month may or may not provide the “independent” feeling that people crave but it is the starting point. Now that you know what your discretionary funding is, you can start to pay off your credit cards or your car payment, or you could save your money and try to increase your income. Either way, you now have the starting point to becoming financially independent. I would argue that almost everyone who feels financially independent knows exactly where every dollar goes to, thus taking the 30-day challenge is a great way to start your path to financial freedom.

If you go pay and see a financial advisor, this will be the first step in the process. If you’ve done this in the past, then do it again. Most advisors recommend doing this every six months or at least annually.