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How to Get Rich and Achieve Financial Independence

How to Get Rich and Achieve Financial Independence

If you’re coming here for another get-rich-quick scheme, this is not the article for you. I’m not about to sell you on a pie-in-the-sky fairytale that will have you driving a Maserati into the driveway of your mansion by next May. But if you’re looking for actionable advice on being smart with money while working hard to achieve financial independence, then let’s explore this concept further together.

First, let’s clarify by what I mean by “rich,” as this is a very nebulous term. The definition of “rich” is as individual as taste preferences of food or fashion. Many times, even when you are considered by others to be rich, you don’t think of yourself that way. After all, it’s all about perspective. In poorer countries, people would consider $20,000 per year to be rich, where in more prosperous countries, it is considered poverty. So, to make this topic much easier to follow, I will leave the number of what you would consider to be rich up to you. Whatever it is, here are some important concepts to ensure success.

Keep Breathing Room in your Budget

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breathing room for wallet

    No matter what your paycheck says, if every bit of that money is allocated to paying someone else, you will never feel rich. Only you can decide what percent of your paycheck you want to live on, but I don’t recommend pushing it to 100%. Keep your expenses down to a level where you aren’t strapped every month. You can have the most amazing home, car, and high-paying job, and still be stressed out and unable to pay your bills. Live within your means and save the rest of your income to build up your long-term economic equity.

    Limit Expenses on Bobbles and Bling

    diamond ring

      Whenever you are about to buy something, consider if that is the best investment for your long-term financial goals. Now, I’m not saying don’t enjoy life, but keep in mind when you buy that boat, that brand-new car, the time-share in Tahiti, the new diamond earrings, or that designer leather jacket, that you are making a purchase where you are most likely losing money. The boat, car, time share, earrings, and leather jacket will not normally gain value over the years. The more you limit these expenses, the more money you can keep for smarter investing.

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      Stop Living to Impress Others

      Sometimes, we can make some very foolish decisions to impress others. The sooner we understand that our self worth is not tied up in our possessions, the more likely we are to achieve financial independence. Keeping up with the Jones’ means a very flashy facade of big-ticket purchases followed by years of financial struggle to pay back the debt with interest accrued. There is no shame in driving a used car with some miles on the engine or finding clothes in thrift stores. You will have much less stress than those working extra hours at jobs that they hate to pay their high credit card payments.

      Avoid Debt, Unless It Makes You Money

      While no debt is necessarily embraceable, there are a few scenarios where debt is often necessary. For example, my husband is in medical school. Since most people right out of college don’t have $250,000 lying around to attend medical school, taking out loans is often the only option. Education loans eventually pay you back much bigger dividends in higher earning potential over the rest of your life. The same goes for real estate. Rather than tie up all of your money by paying off one house, you can use the same amount to put down a deposit to purchase five homes or businesses that you can rehab or rent at a profit, while paying off the remaining loan amount with money from the rent or sale. If the profit gained by utilizing the bank’s money is greater than the interest you are paying to use the money, you come out ahead. You can also utilize credit cards to build up your credit line and get points to reduce other expenses like airline travel. Just make sure you can always pay them off at the end of the month so you don’t waste money on interest.

      Get Out of Bad Debt

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      bad debt

        Think of your financial security like a bucket of water. In order to fill it up, you have to make sure you plug all the holes where it is leaking. Avoid the type of debt that has you paying interest on non-necessary items like the plague. When you carry this debt, you are making someone else richer while you stay poorer. If you already have this debt, make it a priority to pay it off as quickly as possible. Pay the highest-interest balances off first and make minimum payments on the rest of the cards. Then, when the worst offender is paid off, take the exact amount you were paying on the card you have paid off and roll it into the minimum payment of the next card. Continue doing this until you are out of bad debt.

        Revisit the Time = Money Concept

        Most people understand the thought process that when they give their time, they get a certain amount of money back. Unfortunately, there is a limit to this, as there is a limit to how much time you can give. The financially free people often learn to create multiple streams of income and get mailbox money. Think about someone who owns real estate. They do not put any time or effort into your rent check, they just collect the mailbox money every month for allowing you to live there. Or, think about when someone creates a new invention or writes a book. Even if they sell the product to others to market, if they are smart they will set up the contract to continue to collect royalties for the life of the invention. This is mailbox money. After the initial work launching or selling the product, they simply sit back and collect the checks. Or, consider those who invest in the stock market. Once they go through the up-front work to become educated on market trends and how to invest wisely, they put their money in a company and simply ride the market up or short-sell the market and make money as the market goes down. When you realize that you can make money beyond the typical hourly rate, your financial horizons expand exponentially. Most people feel intimidated by this initially. After all, this can push people outside of their comfort zone. But, this is where the truly rich play. They are no different that anyone else, they just learned to invest their time in educating themselves in these concepts.

        Follow a Budget and Set Aside Money for Saving and Investing

        Most people are shocked when they document where their money goes each month. There are so many online tools now that link with your bank account and help with budgeting. It makes it very easy to analyze your spending habits. Try to limit your purchases on frivolous items and learn to set aside a certain percent of your income for saving and investing. Take advantage of company-sponsored 401Ks, set up tax-sheltered retirement accounts, and learn about investing in the stock market or real estate. All of this can be done while still working your day job.

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        Budget Your Time Wisely

        Many people in America watch four or more hours of television per day. Now, if you’re watching the latest investment news, I will give you a pass. But, if your filling up that time with Honey Boo Boo episodes, then it’s time to revisit your priorities. I would challenge you to take just one hour per day you normally watch T. V. and read a book on investing. Or, start a business out of your home in the evening and enjoy additional tax breaks offered to business owners while making money on the side. Or, find other people who are financially free and ask them their advice. If you follow people who are successful, you find they are always learning and broadening their minds on new ways to improve their financial status. And, in my experience, they don’t mind giving advice or helping others along the way. Being rich is not a golden ticket only offered to the fortunate. While some wealth is certainly inherited, there are enough rags-to-riches stories out there to inspire us. It’s simply that few people are willing to change their lifestyle and achieve their financial dreams, because, frankly, it takes hard work and reality shows are just so much more intriguing.

        While this is not a get-rich-quick article, if you apply all of these concepts, you will find that you are well on your way to financial success, whatever your definition. With the right amount of passion, education, and hard work, anyone can achieve their financial dreams. Like most adventures, the length of time to get to the finish is different for everyone. But, like all great journeys, with each step taken, you are that much closer to freedom.

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        Sarah Hansen

        A corporate-sales professional turned entrepreneur

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        Last Updated on March 4, 2019

        How to Use Credit Cards While Staying Out of Debt

        How to Use Credit Cards While Staying Out of Debt

        Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.

        I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.

        Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.

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        Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.

        Do Not Treat Credit Cards as Your Funding Sources

        Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.

        I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.

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        I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.

        If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.

        Make Sure to Always Pay Off Balances in Full Each Month

        The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.

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        Using Credit Cards with Rewards

        Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.

        You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.

        I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.

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        So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.

        What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.

        Featured photo credit: Artem Bali via unsplash.com

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