Welcome to a new week. As Nigerians (at home and abroad) prepare to celebrate our country’s 60th independence anniversary; we will be looking at what it means to be financially independent and ultimately attaining financial freedom.
Many people will agree with me that the current pandemic and economic downturn (in Nigeria and several other countries) have made attaining financial independence a necessity.
It is important to state that even though the words – financial independence and financial freedom are often interchangeably used, there is a difference between them and they mean different things.
Financial independence means you are financially stable – can meet your needs and expenses and may be debt-free (or have debt you can afford like a mortgage). This is basically about having enough income to cover your current lifestyle without necessarily having to work.
Financial freedom on the other hand, means much more than this. To be financially free, you must have enough passive income to cover both your current and future lifestyle – especially in retirement without having to work at all.
Many people easily attain financial independence but struggle with financial freedom. However, you cannot be financially free without first being financial independent.
Below are some steps towards ensuring financial independence:
- Define what financial independence means to you. It must be personal and not somebody else’s dream.
You cannot aspire for what you do not know. The journey must start with a clear picture of what you are working towards.
- Determine the steps you need to take towards reaching “your promised land”.
- Ensure you continually live beneath your means. It was rapper LL Cool J that once said “you cannot remain a millionaire if you make millions and spend millions”.
One unique thing about many millionaires is that their appearances normally belie their wealth; even most of those who dress expensively amongst them tend to be understated about it.
- Block or eliminate loopholes – this may mean doing away with or reducing some expensive habits or even exploring cheaper options. It may even mean distancing yourself physically from people and situations.
We have discussed several of these options (bulk buying, cancellation of unused subscriptions etc.) in the past and they still remain relevant in the quest for financial independence.
- Protect your means of livelihood – either your job or business. One thing that is certain is the fact that you need to have a means of income to have any chance of being financially independent.
- Remember to always save a portion of your earnings.
- Having an emergency fund is very important and necessary.
- Invest in season or out of season – as we have severally discussed, consistency is what matters here.
The years of high yields will always make up for the period of low or no yields (like we are currently experiencing in Nigeria)
- Diversify! Diversify!! Diversify!!! – It is important to always remember that it is not only assets that must be diversified but income streams also. It has been largely reported that the average millionaire has several streams of income.
The phrase “the more, the merrier” is very applicable when it comes to diversifying both our income streams and asset types especially as the world evolves.
- Manage your debts effectively – remember that debt in itself is not bad if it is for either business or buying a commercial asset (the returns will pay for the mortgage)
- Safeguard your assets with insurance – though not a popular concept in Nigeria, insurance is always advisable especially for properties – commercial or residential.
- Ensure you review your net worth and financial goals at periodic intervals. This is key towards ensuring that you are on the path towards achieving the goals you had set for yourself.
In summary, even though the ultimate aim is to attain financial freedom, you must first gain financial independence. It is just like walking and running – to be able to run, you must first learn to walk.
Kindly remember that there is still no cure for the corona virus and that prevention is always the better option.
Please stay safe and continue to take personal responsibility for ensuring that Nigeria does not experience a second wave.
Keep washing your hands, maintaining social distancing and wearing your face masks in public.
Here is wishing you all Happy Independence Day in advance. God bless the Federal Republic of Nigeria!