Nine steps to financial independence

Posted by Rob Minton
Follow me on Twitter

In the past, I have written about the book "Your Money or Your Life," by Joe Dominguez and Vicki Robin. The book is about how people trade their time -- their lives, piece by piece -- for money.

I highly recommend this book and cannot give it justice here. But I do want to share with you the nine steps for financial independence that were outlined in this book. If you are concerned about being dependent on a job, you need to read these nine steps.

Step One: Make Peace with the Past
Calculate how much you have earned in your life. Find out your total lifetime earnings — the sum of your gross income, from the first penny you ever earned to your most recent paycheck. What have you got to show for it? Find out your net worth by creating a personal balance sheet of assets and liabilities — everything you own and everything you owe.

Step Two: Being in the Present — Tracking Your Life Energy
How much are you trading your life for? Establish the actual costs in time and money required to maintain your job, and compute your real hourly wage. Keep track of every cent that comes into or goes out of your life.

Step Three: Where is it All Going? (The Monthly Tabulation)
Every month create a table of all income and expenses within categories generated by your own unique spending pattern. Balance your monthly income and outgo totals. Convert dollars spent in each category to hours of life energy, using your real hourly wage as computed in Step 2.

Step Four: Three Questions that Will Transform Your Life
Ask these questions on each expenditure category expressed in hours of life energy:

1. Did I receive fulfillment, satisfaction and value in proportion to life energy spent?
2. Is this expenditure of life energy in alignment with my values and life purpose?
3. How might this expenditure change if I didn’t have to work for a living?

Step Five: Make Life Energy Visible
Create a large wall chart plotting the total monthly income and total monthly expenses from your monthly tabulation. Put it where you will see it every day.

Step Six: Valuing Your Life Energy — Minimizing Spending
Learn and practice intelligent use of your life energy (money), which will result in lowering your expenses and increasing your savings. This will create greater fulfillment, integrity and alignment in your life.

Step Seven: Valuing Your Life Energy — Maximizing Income
Respect the life energy you are putting into your job. Money is simply something you trade your life energy for. Trade it with purpose and integrity for increased earnings.

Step Eight: Capital and The Crossover Point
Each month, determine what your monthly net passive income is from your investments. Post the monthly independence income as a separate line on your Wall Chart.

Step Nine: Managing Your Finances
The final step to financial independence: Become knowledgeable and sophisticated about long-term income-producing investments. Invest your capital in such a way as to provide an absolute safe income, sufficient to meet your basic needs for the rest of your life.