Getting started on your financial independence journey

From our very first pay cheque we should be thinking about our financial well-being, growing our wealth and ultimately ensuring a comfortable retirement for ourselves. The latter is many decades away, but solid financial decisions made early will have an outsized influence over time.

We need to ensure our own financial independence and that is a life long journey. While it may seem daunting it is totally manageable and a lot easier if it is something we’re always keeping top of mind.

Financial independence is our ability to be financially secure without having to depend on family or the state for our future well-being. It is about having a plan on our spending, saving and investing and making sure the plan is practical and working. It’s about not having money worries because you are in control. It all starts with a budget.

Your budget is about knowing what money is coming in every month and where you spend that money. Some of it is easy. We receive a set salary and have to pay for a place to live, we need to eat and clothe ourselves and we need to be able to get to and from work. But we also need entertainment, insurance, saving for holidays and maybe even a down payment on buying a place to own. Our budget also needs to allow for longer-term investments.

The savings part is very important. An emergency fund is the corner stone of financial independence. This is at least three, maybe as much as six months, living expenses saved and kept in a short-term bank account where it can be quickly accessed as needed. The idea here is that the emergency funds are for just that, an emergency. A simple emergency may be an unexpected medical expense, burst geyser or a car accident that requires you to put in extra above the insurance pay out. The biggie is losing your job.

Any one of these mishaps could be a disaster if we don’t have an emergency fund and couldn’t afford the unexpected expense. But with readily available cash it becomes a minor issues quickly resolved and with the smaller emergencies you can take out the money, pay off the expense and build the fund back to its desired amount.

Losing your job is the reason why you should aim to cover your living expenses for a few months while you try to find another source of income. While some people like the security of six months’ worth of a full salary, you really only need enough to cover your living expenses. When you lose your job you probably won’t be putting away savings money or going out quite as much until the crisis passes. An emergency fund will allow you to survive until you get back on your feet.

Once you have an emergency fund in place you need to start the investment journey. This is long-term investing that will grow in the stock market and maybe even a small slice into alternative assets such as commodities or crypto.

How much should you invest? Conventional wisdom will have you aiming for a percentage like ten, fifteen or even twenty percent of your income every month. However, another way to look at it is to focus on how much you spend.

If we reduce our spending, and of course our budget helps us with this, we will have more to invest. Spending less when you’re earning an income means the amount you need to become financially independent is much lower. Either way, more is better and the sooner one starts the easier it is. Starting from your first pay cheque gives you potentially four decades of investing. That’s 480 pay cheques to put towards our future, each one taking us a step closer to reaching financial independence.

A last important point is insurance. This is not only your car and house contents, but also insuring your important income producing assets and yourself. If you have dependents, you need life and disability insurance as well as dread disease insurance. You also need to insure your laptop and cell phone if they’re an important part of how you earn your income.

Tackle that budget! Make it realistic and fun. There is no point is saving a ton but having no fun with your life. Find that balance for yourself between enjoying your life now while securing your life in the future. Make sure you have an emergency fund in place that is at least three months or even six months’ worth of expenses and start investing for the long-term. Check in on your insurance, making sure you have enough and in the right areas.

With all this in place you’re well on the road to financial independence or a secure retirement.