4 Proven Philosophies on Financial Independence

Have you ever played Monopoly? I'm talking about the original where the banker counts the money (the non credit card version), you build houses and hotels until you hike up the rent so high you start feeling bad for the people who land on your Boardwalk.

The game is amazing! I love it! The thing is, similar to life, you can only play so long, and at the end of the game, all of the pieces go back into the box.

As a first generation American, my immediate family started from scratch.

I caught more than I was taught when learning about money, so the game of Monopoly was my only financial class for a long time.

Eventually life enrolled me in other classes: “How to get Into Student Loan Debt,” “Credit Card Debt 101” and “Intro to Car Debt.” As you can guess, I passed with flying colors.

One day, although too ashamed to ask for help, I finally cracked. I asked (more like bugged) my co-worker and later friend, Ellory Wells, the author of Empoweringthe80Percent.com about every financial question I had.

Finally, he pointed me to Dave Ramsey and the rest was history.

Within days, I did my research and signed up at my local church to take the 13 week course called Financial Peace University.

I started the year off at around $14,700 in debt from the mentioned debt classes life enrolled me in, but by the time I started the class I was around the mid $12k mark.

At the beginning of class, I set an aggressive goal to pay off my debt by week 13. And guess what? I became debt free. No confetti fell, but the feeling of being debt free at age 25 was priceless.

In brief, since becoming a certified financial counselor I have focused on empowering families and single people to be good stewards of their resources.

Excluding the teachings of Dave Ramsey (and his excellent team), I am going to share four core philosophies that have helped me relate with money and pay off over $12,000 in debt in less than 13 weeks.

But first, what is financial independence?

Financial independence is the ability to live on the income from your own personal resources.

Imagine what you would do if you had no debt, and your cash flow more than covered your monthly expenses.

What would you do?

How many people could you help?

Where would you visit (or live for that matter)? Think of the possibilities!

But how do I get there?

Philosophy #1: What to do with what’s left

When cash flow planning, or budgeting, it is vital that you do not spend first, then save and give what is left. That is a recipe to stay broke.

Instead, follow what successful people do, first give and invest (in your future) before you spend what is left.

This game is 80% behavior. Automate the process if you can. This leads us to philosophy #2 on how much to give, save and spend?

Philosophy #2: “The Formula” for Every Dollar

To properly manage your money, you have to know where your dollars will be spent before you spend them. Depending on your income level, the ratios will vary, but for me, here was a good starting point.

At most, 70% of what you earn goes towards living expenses. In other words, up to 70 cents out of every dollar can be spent responsibly.

10 cents of that dollar goes toward some type of charity or church. We must give back for everything we receive in this world.

There is nothing better to build character than giving. Character is built through generosity (Tweet that!).

At least 10 cents towards capital. Saving for future purchases or restocking that emergency fund. For example: vacations, new furniture, or a home. Typically you want this money in a fairly liquid account with check writing ability, like a money market mutual fund or savings account.

Lastly, at least 10 cents goes towards passive income. Allow someone else to invest the money for you for a reasonable profit where you earn interest.

Philosophy #3: Profits make you a fortune. Wages make you a living.

Compound interest works best when time is on your side. Start early and often when investing. Avoid penalties. Only invest in what you understand. That way time can be your best ally versus being your biggest foe.

Philosophy #4: Stay out of Debt!

As it says in Proverbs 22:7 (NIV) – “The rich rule over the poor, and the borrower is slave to the lender.”

Like I mentioned, I recommend following Dave Ramsey’s 7 Baby Steps taught in “Financial Peace” to all of my clients. It works!

Only buy things you can afford. Pay cash.

The road to financial independence can be fun like the game of monopoly or a nightmare if you land on someone else's Boardwalk. The head fake for this post is that we all know we can only play the game so long before all the pieces go back in the box.

The question is, Who will you pass the box to next?

And will you teach them how to win when they are playing against the next generation of wealth builders?”

Complimentary Resource: If you are overwhelmed with money and are looking for guidance on where to get started, download the Building Me Project: Financial Essentials Checklist for free.

The checklist will give you an organized way to tackle your finances no matter which financial phase you are in.

Disclaimer: This column and the resources listed are no substitute for an individualized recommendation, tax, legal or personalized investment advice.