Being financially independent is just a dream for many people, yet it does not need to be. Need proof? Look at the several examples of janitors and other low-wage earners managing to save up enough to give away seven-figure (yes $1,000,000+) gifts or leave similar sized estates. If they can manage the job, so can the rest of us.

What they did that was different is that they recognized the keys for financial independence.

1. Avoid debt.

Debt is the greatest oppressor out there. Specifically, we are talking about what is usually called 'Consumer Debt'. Lines of Credit, credit cards, payday loans, and car loans are all examples. The money borrowed is spent on depreciating assets that get used up - often faster than the loan can be paid off. You cannot buy your way to wealth, and consumer debt is all about buying.

I will put a caveat in here however. Debt incurred to make money is a different story. Real estate investment loans and small business loans are examples of ways you can borrow money to create personal wealth. The difference is what the money is spent on and how you expect to pay it back. Good debt is seldom paid back out of a payroll check.  Instead, it is paid back and more by what the money was spent on int he first place.

Mortgages and margin loans fall into the grey area between good and bad. Both can be used to buy appreciating assets. Used properly, they help savvy buyers increase their returns substantially. Unfortunately, there is no guarantee with either and used improperly you can lose a lot more than you originally borrowed. Many sub-prime borrowers and banks are finding that out now in a lesson that should not be soon forgotten.

2. Save early and often.

The magic of compound interest can be our friend. Every dollar that is saved today is more valuable than a dollar saved tomorrow or next week. The longer the time period that to work with, the more valuable today's dollar will be. It is the savings we make today that can way outperform any savings we make in 5, 10, 15 years or more.  Early savers do not have to save as much as late savers do in order to reach the same goals.

3. The little bits count.

Each dollar here and each dollar there really seems like nothing at all. But it all adds up.  Each dollar makes a difference. The best analogy I can come up with is that your wealth is like a wall. As you work on building it each day, the difference of a single brick or two is hardly noticeable. Yet over a lifetime the difference can be huge.

The worst part for most people is that this rule holds true for spending money too.  A little bit and a little bit there is how most people build up  large consumer debt balances.

4. Give it time.

Time is you ally when you are saving money and it is your enemy when you owe money.  The longer a time period that a debt or investment has to grow, the size it can reach will grow exponentially.  When you are saving money, the first $100,000 or first $1,000,000 will take the longest.  The second will be much faster, and the third faster still.  That is the power of compounding.

Credit works the same way.  The larger your debt balances are, the quicker they are going to grow.  That is why paying just a little bit extra on your debts helps to pay them off at an accelerated rate.  By reducing the size of the debt slightly faster, the rate of growth from interest is also slowed down.  Thus a double savings that when applied to a long term debt results in a significant reduction in how long it takes to pay it off.

5. Live modestly.

This has everything to do with living what is important.  A 5000 square foot home will not change who we are or what is important to us.  If a 1500 square foot home is all we need, lets live in a 1500 square foot home.  Likewise, working from home and seldom driving anywhere else lets us be satisfied with a 5 year old sedan in the garage rather than a brand new mega-SUV.  Anybody who hauls a lot of stuff around everyday (I'm thinking of a building contractor as an example) is going to be better able to justify getting a new or almost new heavy duty pickup.

It is all about matching your purchases with what is important to you.  It is especially about those major purchases like the house and car which influence the cost of our lives day in and day out.  When they match to what we need and not exceed those needs, then it makes our goals of financial independence easier and quicker to reach.

6. Avoid addictions.

Anything addicting - even if the medical profession does not classify it as such - is going to harm our lives.  Smoking, drinking, gambling and shopping are among a long list of actions that have the potential for harm.  Does it mean never do any of these?  Not necessarily.  An infrequent drink or a planned shopping treat is unlikely to have long term repercussions.

It is when they become frequent, excessive and take away from the important parts of life that they become a problem.  However, the person who never drinks, smokes or gambles is certainly going to have an easier time meeting their financial goals than somebody who moderately partakes.

7. Give back.

This is the entry about not being a Scrooge.  Life is too short, friends and family too precious to become a parsimonious hoarder.  There is too much injustice and indifference in the world not to share with those less fortunate.  Make giving a part of your life, and do not limit it to dropping a check in the mail to a worthy charity.  Actually making giving a regular part of your life.

Helping others out in meaningful ways provides as much for the giver as it does to the recipient.  Personally, I recommend Big Brothers/Big Sisters, Boy Scouts and Girl Scouts, Boys and Girls Clubs, and your church home.  These are only a small beginning of the list of worthy institutions to help with your time and money.

8. Don't be owned by possessions.

It would be a lot of fun to have an original Shelby sitting in the garage or to have a good size boat down at the marina.  I personally would enjoy having a small plane in a hanger at the local airfield.  Yet doing so would put me in thrall to my possessions.  Living at the edge of my means would make it so that I am working just to keep what I already have.  My current possessions would own me and not the other way around.

The closer to that edge that a person is, the less freedom they have.  There is an easy way to tell how close you are to that edge too.  The less comfortable you are in taking time off for a vacation or to consider a career or job change because of worries about keeping your possessions the more you are owned by those possessions.

Make financial success easier by staying away from that edge.  Work to live instead of having to live to work.

9. Don't tell.

As you progress toward your financial goals, life will get easier and easier.  You will be tempted to share just how well you are doing with friends and family.  It is only natural because we like other people to know and admire how good and successful we are.  I strongly suggest not telling anybody else.

If friends and family know that you are a multi-millionaire - even though you still drive an old car and live in a modest home - they will regularly come to you asking to borrow money or for you to invest in something they are a part of.  It is difficult to say no.  Yet most people do not realize that that kind of money happens because it was carefully saved away and built over time and not because it was given away to get rich quick schemes or gambled on unlikely returns.

Some people will be emotionally hurt that they were turned down and it can damage otherwise good friendships.  Not sharing information on finances makes it easier to say 'I cannot' when asked and decreases the likelihood of being asked in the first place.

Sharing knowledge is another story entirely.  Helping people learn and apply basic skills is something that you should not be shy about sharing.  This is a natural outgrowth of success.  Wanting others to succeed too and sharing the enjoyment.  That can and should be passed on.

10. Say No.

As indicated in the previous point, it will happen.  A family member will have financial problems.  A friend will want help with starting a business.  Worthwhile charities and scammers will ask for contributions.  If the reason was not chosen, planned for, and budgeted to give that money away - and none of these choices are likely to return any money ever - then just say "NO."

Nobody has the resources to solve every problem and throwing money at most is not the answer anyways.  Making choices about what to support during the planning and budgeting process is vital.  Sticking with those choices is an important part of reaching any goal, not just financial ones.  If something comes along that is deemed more important than what was originally chosen, the planning process can be revisited and what should be done then.

Conclusion

In the end, reaching financial independence is all about planning for the future, being careful with money and debt, saving and investing regularly, and giving it time to grow.  With care and effort it is possible for each of us to reach some level of financial independence.

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