There are 4 basic ways to achieve financial independence. Before I share these with you, I thought I would start with my updated definition of financial independence:
Financial Independence – Having enough money coming in each month to cover your family’s living expenses without having to trade your time for the income.
So if this definition works for you, here are the 4 ways to achieve financial independence:
1. Work for X number of years contributing a portion of your income into your retirement savings account. The savings goal would be based off of the amount of income you needed annually to cover your living expenses. As an example, lets assume your living expenses are $40,000 a year and you only wanted to live off of 4% of your savings. You would need to save or accumulate $1,000,000 in order to withdraw $40,000 a year for life.
This is the strategy suggested by most financial planners. Save 15% of your income automatically each month and work until your 65. This plan obviously works, but it requires you to trade a significant portion of your life to achieve.
2. Build a business with value that can be sold for the amount you need to provide your retirement income. Using the same example as above, build your business so that it could be sold for $1,000,00 after taxes. Invest that money conservatively and withdraw 4% annually to provide your $40,000 of living expenses. The idea is to trade your business for your retirement income.
3. Create a business operating without your day-to-day involvement that provides $4,000 a month of income to your family. A great example of this would be a property management business where you received income each month for property management services provided by your team. Maybe you manage 50 properties averaging $150 a month from each property. You pay $3,500 a month for others to help you manage these homes. You collect $4,000 a month after expenses.
4. Own assets that provide monthly cashflow equal to your living expenses. This might be 4 rental properties generating $4,000 a month after taxes, debt service, and operating expenses.
Since these are the only 4 ways to achieve financial independence, my suggestion is to use all 4 to your advantage. This would allow you to reach financial independence a lot faster and you would save years of work in the process. The trick is to see your business as a tool to create financial independence for your family.