6 Steps to Financial Independence

In the game of the rat race, the goal is to become financially free.  For the past weeks, I’ve been browsing online articles from financial planners hoping to find some tips how to attain financial independence.  Interestingly, I come accross the blog of Charles Amoroso, a Filipino Financial Planner talking about the 6 Steps to Financial Independence.

I summarize it below based on my own understanding:

1.  The Discipline to Increase Cash Flow

There are two ways to increase cash flow.  First, is by increasing your income through sidelines or business.  Second, is by reducing your expenses.  Evaluate your needs and wants.  Prioritize you needs and reassess your wants.

2.  Debt Management

The excessive, high interest debt such as credit card is the main culprit of ruining your financial dreams.  To manage debt, one must learn how to consolidate his debt, eliminate debt before investing. If possible avail a lower interest debt to pay the higher interest debt.  The latter is not the best strategy to manage your debt but atleast it my reduce the burden of paying the high intererest debt you have.

3.  Create an Emergency Fund

In order to address for any contingencies that may arise such as losing job, or your business not performing well it is good to set aside atleast 3 to 6 months worth of expenses. Do not use the emergency fund unless it is emergency.

You can also put your fund in liquid investments such as Time Deposit / Money Market Fund.

4.  Ensure Proper Protection

Look for Income Protection.  To have peace of mind and provide proper protection (Life Insurance) for your family while building up the wealth/passive income.  In the event of untimely death,  life insurance protecton can help replace your income, help finance children’s education, pay for basic needs, pay estate tax, pay debts, hospital bils, funeral expenses, etc..

5.  Build Long-term income producing ASSETS

Focus in building long-term assets that generates Passive Income.  Work out in accumulating assets not liabilities.  Move lower interest savings to higher interest savings.  Learn how to make MONEY WORK FOR YOU, not against you.  Dedicate some time in studying RATE OF RETURN, TIME VALUE OF MONEY, COMPOUND INTEREST, TAXATION and the effect of INFLATION.

6.  Preserve your ESTATE

Build a family legacy and make sure that your children inherit your estate.  Proper estate plan can take care of your children during your life and after death.  Put it simply, Protect what you’ve build.

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