"The chains of habit are too light to be felt until they are too heavy to be broken."
-Warren Buffett

Financial independence is reached when your investments earn enough money for you to sustain your lifestyle without needing to work. For example, if you work a job and you make $50K per year and you spend $40K for the year, the goal would be to invest enough money that you begin to earn at least $40K or more per year from your investments. Notice the goal isn’t to drive the latest nice car or buy the dream house. The goal is to create a system of habits that result in your current financial lifestyle being paid for without having to work a job. Once you master this, you will be ready to begin creating a system for generating wealth to get all of the “toys” and “non-essentials” (e.g. nice cars, dream homes, boats, planes, etc.).

There are several financial intelligences from understanding how to increase your income to understanding how to leverage your money and let’s not forget about budgeting your money (more on those topics later). Most people believe the most important step in becoming financially independent is to make more money (i.e. increase your income). WRONG! The most important step is to learn how to protect your money.
For example, if you make $85K/yr and you pay $30K in taxes you only net $55K. Imagine someone that makes $70K/yr and only pays $10k in taxes which leaves them a net of $60K. The second person mentioned will always keep more of his/her earned income so as he/she makes more he’ll/she’ll keep more. High income earners like lawyers or doctors have it even worse. Sometimes making $300K/yr just to pay over $100K in taxes…YIKES!
I choose to speak about taxes because after your housing expenses that’s usually an individual’s biggest expense. There are several ways to protect your money from taxes.
- Start a side business
- If self-employed, start a corporate entity
- Buy instead of rent a home
- Save money in a tax deferred account (creating a tax write-off) vs a standard savings account
- Use a tax free account (e.g. ROTH IRA) to eliminate taxes on all current and future investments
- Learn to hold an investment for at least a year so you pay capital gains tax (e.g. 15%) instead of ordinary income tax (e.g. 25%+), etc.


Bad debt is debt that doesn't result in a net gain or simply doesn't make you money. For example, if you charge $5,000 on your credit card to buy a new television and surround sound, you now have a monthly payment to make until it is paid off. Pure bad debt.
However, consider if you use the same credit card and charged $5,000 to buy a vending machine and placed it in your friend's busy store and every month AFTER paying your monthly credit card bill and fees associated with the vending machine you had a net profit of $300 left over. You're making a profit even after paying your credit card monthly payment and eventually the credit card will be paid off leaving you with even more profit. This is just one example of good debt. Good debt makes you money.
Paraphrasing something Warren Buffett once said, 'it's very difficult to save or invest if the money you earn is going towards paying off debt plus interest. Many people pay 10% or more in interest on bad debt and make far less on their investments or savings, this is a losing strategy.'
There are several reasons people get into bad debt like unforeseen emergencies or unemployment. However, most often, bad debt is usually a result of bad spending habits. Becoming financially independent is nearly impossible when it costs you money to spend money. Stay away from bad debt. If you have bad debt eliminate it.

If you don’t save money you won’t have money to invest and make money with. There are several opportunities to put away money.
- Save your tax return
- When you receive a discount or “save money” on a purchase, actually save the money. For example if you have to fly to visit your family and the plane ticket is usually $600 round trip and the airline you normally fly has a roundtrip special for $350, actually put the $250 savings away into an account (preferably an IRA or some other tax advantage account).
- Contribute more to your company sponsored 401K. This is particularly easy if you usually receive a tax return, instead of contributing 4% to your 401K consider contributing 10%+ and decrease your payroll withholdings (e.g. increase your exemptions). By decreasing your withholdings you may not get a tax return however, you’ll be contributing more to your 401K without noticing a difference in your paycheck. The magic here is that instead of extra money being withheld and then returned later, you now are saving that money in your 401K and earning interest on it.
Statistically speaking 99% of people, save less than 15% of their pay in their retirement account. Equally as interesting, is that 99% of people today, that are age 65, have less than $1 million in their retirement account/s. In other words, work your way to saving at least 15% or more in your retirement account/s. Be a part of the 1% that saves 15% or more to be a part of the 1% that has $1 million or more. Let me be sure to mention: TODAY, MORE THAN A THIRD OF MIDDLE-CLASS FAMILIES AREN’T SAVING ANYTHING IN A RETIREMENT ACCOUNT.
You must learn to invest. Simply saving money is not enough as inflation will erode its value.
First let’s start with what not to do.
- Do not take investment advice from people that are not financially independent. Please consider that savvy investors lose money when they work a job because it takes away focus from managing their investments. If your co-worker really knew how to invest would he/she really still be sitting next to you every single day? I can’t stress this enough, do not take advice from your co-workers.
- This next one will definitely shock most people…do not take advice from your “financial advisor”, he/she is working a job just like you…they’re just simply working in a different industry. Sure, there are a few really good financial advisors out there but most of them are not savvy investors and are not financially independent.
- Do not invest in something that is popular or well accepted. Here is a simple test, if more than half of your co-workers are investing in it, it’s the wrong investment. Sure you may make some money but there is simply some better investment out there that will return more with less risk. For example, most middle-class Americans invest in mutual funds. A mutual fund is simply a basket of stocks with a built-in fund fee. By reading the prospectus of the mutual fund an investor can determine which stocks are in the fund. If the investor were to buy the same stocks outright, he/she would be guaranteed to instantly make more than the mutual fund itself because now the fund fee is eliminated. This is why no billionaire on earth uses mutual funds as a wealth building strategy and neither should you.
- Do no try to hit the jackpot. Investing is a habit and should be done consistently for years. Avoid the clear get rich quick gambles. For example, most professional and savvy investors avoid the so-called “ready to explode” penny stocks.

- Find someone that is financially independent to give you advice. Believe it or not people that invest for a living love to look at other investment opportunities and compare. If you bring ideas they will usually be able to tell you very quickly the pros and cons based upon their investment success and losses. Furthermore, whether you invest or not has no impact on how a financially independent person’s portfolio will perform so they don’t mind giving you advice. Do not skip this step, find someone experienced that you can bounce ideas off of.
- Before you invest be sure the numbers and statistics are on your side. For example, knowing that more millionaires have been created in real estate than in any other industry may be a determining factor to choose to invest in some type of real estate vs investing in something else. I encourage people to really look into owning real assets from land to buildings to even precious metals. Real assets tend to outperform paper assets [stocks, bonds, mutual funds, CD’s, etc.] over the long run.

The important thing is to learn [understand the do’s and don’ts] an investment strategy and begin investing. To be clear, it’s nearly impossible to become financially independent if you don’t invest.
Are you financially independent? Please leave a comment below on how you became financially independent or what is working for you.