What is financial independence built upon (imho)?
This article is the first in a three-part series entitled “How to FI” (where FI = Financial Independence).
I think everyone here would 100% agree that independence and freedom make you happy. In this context, I’m talking not only about freedom in a financial sense, but also about having the freedom to allocate your personal resources as you want.
Imho, independence therefore means living a self-determined life according to your own ideas and terms, being able to implement your personal and professional goals freely and being able to organize your time as you wish.
But to achieve all this, you need “financial independence”. But what exactly does this term mean?
From my personal point of view, financial independence is based on three pillars:
1) Invest in yourself (this article)
2) Create multiple income streams (BLOG ARTICLE LINK) and control your spending
3) Invest for the long term (BLOG ARTICLE LINK)
These 3 pillars don’t form a sequence (ie. Pillar 3 is not the consequence of pillar 2, and pillar 2 not the consequence of pillar 1).
Of course, all three pillars are interrelated, but you have to work on all three pillars. Not necessarily always at the same time. But you do well if you keep all three of them in focus.
Today, let’s focus on the first pillar: Invest in yourself.
Let’s face the facts as they are: You will always encounter situations of personal, professional and also financial challenges throughout your life.
In order to successfully navigate through all those challenges, I think it’s essentially important to work on your skills on a regular basis.
In the context of financial independence, I personally would distinguish between money mindset, professional skills and financial skills.
Let’s have a closer look on them.
1) Money mindset skills
As a first step, I personally think it’s essentially important to take stock of your individual attitude towards money in general. It’s also about your current and future financial situation and how you want to shape it.
The way you look at money, determines…
➡️ … the value you place on yourself in your profession – whether your are an employee, a self-employed expert or an entrepreneur.
This in turn is reflected in your income. If you are good in what you do, you should make clear that your expertise/service/products have a certain value. So this is all about financial self-esteem.
➡️ … your general attitude towards financial wealth.
Putting yourself into a financially strong position in the long run, makes you less prone to any dependencies. And you will also possess the necessary ressources to help others, if needed.
As I’ve said before: Negative beliefs are detrimental to your money mindset. So I would encourage you to review and – if necessary – change your mindset for the better. Turn your negative beliefs on money into positive ones.
Once done, you can implement this new positive money mindset into a proper and practical handling of money. To prepare your financial independence journey and to set up your own financial infrastructure.
Just a blueprint for inspiration:
1️⃣ Avoid overly excessive consumption.
Keep more in your wallet than you spend. Every day. Have your finances under control and don’t let any unnecessary spending or private consumer debts control you.
2️⃣ Try constantly to raise your income.
Preferably by creating additional sources of income (SEE POINT 1 AND BLOG ARTICLE). Acquire the necessary work skills.
3️⃣ Develop an individual money management system.
This is to manage how much money you spend fo which specific issues.
This is also to have a clear overview at all times and to have always enough money available in all areas of life.
4️⃣ Gather the necessary money knowledge and learn to invest your money by yourself. (see POINT 2 AND BLOG ARTICLE).
5️⃣ Invest your money wisely in order to increase it.
This will make you generating/raising income also from capital (see POINT 2 AND BLOG ARTICLE).
6️⃣ Define appropriate long-term goals.
And subordinate your financial planning and infrastructure to your goals.
7️⃣ Always monitor and question your actions.
Keep tracking your goals and your desired results. Always remember your WHY.
Generally, I would recommend you to create a meaningful and empowering mental environment – inside yourself and via connecting with like-minded people. Cultivating rich thinking is crucial for your efforts.
2) Professional skills
Your professional skills are the foundation for your professional success – and therefore also your income.
If you are working as an employee, it’s important not to remain in the status quo. Instead, keep your skills up to date through ongoing training. Try to make yourself as valuable as possible to your employer. BUT: Please keep in mind that – unless you have a big influential professional network – as an employee, you are in a kind of “vulnerable” position with increasing age: Ageism is prevalent in many sectors!
If you are a self-employed expert or entrepreneur, you will have to keep your skills up to date anyway, in order to provide the best possible added value to your clients. But from time to time you will surely be prone to income fluctuations – which is absolutely normal.
In any of these cases, I personally would encourage everyone to invest regularly in your professional skills – preferably in combination with seeking a second professional activity. (LINK ZUM BLOGARTIKEL!) – not only as a backup option but also as a field of activity that you enjoy!
Whether you’re learning a new programming language or acquire online marketing or project management skills: There are so many ways to upskill (sometimes even for free) these days. Check out sources like Coursera, Skillshare, Linkedin Learning, Codecadamy, Duolingo, … just to name a few.
Unless it’s a profession that requires a formal education with a state examination, many skills and professions can be learned individually and trained on-the-job.
Try to find professional activities that you are passionate about AND with which you can provide added value to customers. Those activities pay you well 😊
So if your individual situation allows it, I would personally recommend building up at least two sources of income from work.
In the end, always keep one thing in mind: Work must be fun. Learning new skills must be fun.
I would recommend to take stock and as yourself following structured questions:
Status quo: Where do I currently stand in my career? Are my current skills succifient? Where do I lack skills? Do I want to advance and learn new skills?
Goals and values: What are my professional goals? How do they fit in with my values?
Transition potential: Do I feel comfortable in my current activity? Do I currently have capacities to pursue a second professional activity? Or even to change my main activity completely, combined with a second activity?
Financial backbone: Do I have enough money to invest in professional education? Do I have enough financial reserves as a backup and as an investment in education while I am transitioning my professional career?
Plan B: Which other options shall I explore if my current professional transition projects fail?
3) Financial skills
Not only your professional skills, but also your financial skills matter!
The opportunities for enhancing your financial skills are almost unlimited. There are countless financial blogs with different focuses, financial journals, specialist books, consumer magazines, YouTube videos, online courses, social media groups and meetup groups.
Investing in your financial knowledge on a regular basis is the key to your financial success. Put the knowledge you have learned into practice – consistently. You will not become successful through knowledge alone, but through applying knowledge and getting into action.
Also in the context of financial skills, I find it very useful to take stock and to ask yourselves:
Status quo: Where do I currently stand with my finances? What skills do I or do I not yet have? Am I disciplined in my budget management (income, expenditures)?
Goals and values: What are my financial goals and how do my finances fit in with my goals and values?
Savings potential: What is my current savings rate? How can I increase it? Where can I save money each month?
Personal financial infrastructure: How should I organize my personal finances?
Wealth accumulation: Am I skilled enough (or do I lack knowledge) in investing my money? How high is my risk tolerance? Which products suit me? Which investment strategy suits me?