10 Strategies to Fast-Track your Financial Independence

These are some of the strategies I've to generate passive income so that you too can become Financially Independent

It doesn’t matter how much money you earn from your career, your business, if you win the lottery, or were given a billion dollars.  Being Financially Independent means you have passive income (that’s income that is generated from your investments without day-to-day management on your part) that exceeds your expenses.  Note Passive income.  Passive income is not employment income.  For example, if you’re a landlord and have a renter, the rent is passive income.  If you own stocks that pay dividends, the dividend is a passive income.

Becoming Financially Independent will take time, and you’ll need to work at it, but trust me: it gets fun, real quick.  You might also be surprised to know that it really doesn’t have to take a life time to achieve! In my book, The Financially Independent Millennial, I write about my story of how I made mistakes, learned from them, made other mistakes, learned some more, and finally became Financially Independent by age 35.

Here are 10 Strategies I’ve used to become Financially Independent:

1- Decide to do it

This and following it through are by far the most difficult parts of becoming financially independent.  Sounds simple, but one really needs to decide to live the lifestyle that’s needed to have financial freedom.  The fun part is that when you’re ready and start working on your plan, it will be self-fulfilling. The “wins” will feel better and better!

2- Create a cash flow plan

It’s important to have a crystal clear picture of your financial house.  It’s really quite easy once you get the hang of it. I like to use a spreadsheet that I can both easily and frequently access (My favorite is to host it on google drive, but you can put it wherever).  Here is a link to my own spreadsheet that I like to use.…/Surplus Academy – Cash Flow Statement to Fill In.xlsx

In working with others, I usually suggest to go back 3-4 months and find out two simple things… Income and Expenses.

For the last 3-4 months, organize all the income and expenses, month by month.  Be as detailed as you can. In the income section, keep in mind that it can be from any form, not just employment income, but also any government refunds, investment income, rental income etc.  

On the expenses section, again, try to be as detailed as possible.  Start by looking at your checking/savings accounts, credit card accounts, HELOC and all other accounts.  It might be easier to download to a .xls or .csv format from the bank, and then organize all the line items by category.  For example, if you ate out at 3 different restaurants, you can just summarise the expense item as “Restaurants”.

Here is an example of what your cash flow plan might look like:

Cash Flow Plan
TargetDecember 2018January 2019February 2019
INCOME (Monthly)
Working Salary (Fixed)$5,618.09$5,618.09$5,618.09$5,618.09
Rentals Income (Duplex)$1,300.00$1,300.00$1,300.00$1,300.00
TOTAL INCOME$6,918.09$6,918.09$6,918.09$6,918.09
EXPENSES (Fixed Monthly)
Rent / Insurance$1,750.00$1,750.00$1,750.00$1,750.00
Mortgage for Duplex, Taxes$604.82$604.82$604.82$604.82
Electricity – Primary Residence$105.00$104.51$104.51$104.51
Cell Phone$90.00$88.35$88.35$88.35
Cable TV & Internet$150.00$144.39$144.39$144.39
Credit Card A+B+C$220.00$220.00$220.00$220.00
Car Expenses$330.00$330.00$330.00$330.00
Student Loan$475.81$475.81$475.81$475.81
TOTAL EXPENSES$5,825.63$7,844.93$7,067.52$7,248.76
Surplus (Deficit)$ 1,092.46$ (926.84)$ (149.43)$ (330.67)

In this example, you will see a TARGET column, in addition to the monthly columns.  The Target column is your goal for the month. In this example, the goal is to achieve $1,012.46/mo ($12149.52/yr) in surplus income.  Next step is to start filling in the past 3 months income and expenses. As you can see, in December 2018 and January, there was in fact no surplus.  The example person actually spent $886.84 MORE in December than they earned. If this is like you, don’t worry, it’s not an uncommon issue and is generally easily fixed.

3 – Cut Cut Cut the expenses and set the targets!

In the above Cash Flow Plan, you now have a better picture about where you’ve been spending your money.  It’s also the point you need to ask yourself about how much you really spend. And how about the other fixed costs like the Credit Card payments (Are you really just making minimum payments?), Student debt, etc.  While some categories are easier to cut than others, there’s almost always places to improve.

Society is generally quite knowledgeable about how much and when their income will arrive, but rarely devotes more than a fraction of that time focusing on their expenses!

My favorite way to start an expense cutting campaign is to make it in to a game. Patience is key – it’s something that will take time to get right.  Start slow and work out the easy categories first. Start with Shopping and Restaurants. Set a goal of cutting these categories’ worst month by 50%.  For instance, in the above cash flow example, the person spent nearly $1,500 in December on restaurants. Consider setting a goal to cut that in half (I.e. $750/mo).  And then, think about ways you might be successful in doing so… eg could you bring food to work (For lunch) or make your coffee at home, and bring it with you outside?

For the shopping category, ask yourself the next time you consider buying X or Y the following questions: “Do I REALLY need this” and “Can I live without it”?  

Also consider your monthly surplus target.  This is the target surplus that you should have at the end of the month.  The higher the number the better, and if you exceed the target, consider that a win! If your monthly surplus target is $1,000 and you have $1,200 left over, that’s fantastic! Over a period of a year, consider setting a surplus target of 75% of your income.  And by the end of the 2nd year, try for 50%. For instance, if your household monthly income is $7,000 – set a monthly surplus target of $3,500. This won’t be easy, so take it slow.

4 – Earn More / Get A Side Hustle

It doesn’t matter if you earn $50,000 or $150,000 a year.  Unless you’re generating a monthly surplus (I.e. Earning more than you spend), you’ll never achieve financial independence.  

This above quote is one of my favourites.  Aside from cutting expenses, there is simply no quicker and easier way to improve your monthly surplus than getting a side hustle.  Today, career prospects are better than they (almost) ever have. Anyone who wants a job can get one. A nice benefit of this is that after a few years in your current position, you can likely move in to a new / better / higher paying role at either your current employer or elsewhere.  Consider this carefully when looking at your overall cash flow plan.

If moving up in to another employment opportunity isn’t quite possible at the moment- Perhaps you love your job or where you work, or the benefits, for example, you might consider starting a side hustle.  Think Ride sharing, food delivery, teaching english online, becoming a local tour guide, or even just a simple part time job! Getting a side hustle will help you increase your income.

5 – Create an Emergency Fund

First, what exactly is an emergency fund? Its some money set aside if “worst came to worst”.  For example, you might have lost your job, or faced with a significant and unexpected expense.  The emergency fund should be the form of a savings account – but you can’t touch it, unless there’s REALLY an emergency! Experts agree an emergency fund (sitting in a savings account, not to be touched unless there’s a REAL emergency) should be 6 months of your necessary expenses. That means rent/loan payments/insurance, etc.   It does not include discretionary categories such as eating out, or “new jeans” because these would be cut regardless in an emergency.

By now you should be generating some extra cash at the end of every month.  That’s your surplus. Start by transferring your surplus at the end of each month to your emergency fund savings account, until you get to 6 months of necessary expenses.

6 – Pay down all (non-mortgage/investment) debt

Once you have your emergency fund set up, start by organizing all your credit cards, lines of credit, car loans, and all non mortgage/investment debt you might have.  

For example, your situation might look a little like:

Total OwingMonthly PaymentMonths Remaining
Car Loan$17,000.00$472.0040
Credit Card A$4,000.00$40.00240
Credit Card B$5,000.00$50.00240
Credit Card C$6,000.00$60.00240
Student Debt$22,000.00$275.00120

Experts are divided on where to start.  Some believe its best to start with the loan/debt that has the highest interest rate.  I believe starting by paying off the account with the lowest balance. It becomes a quick win, and on to the next.  It builds confidence and I think you’ll more than likely stick with the program. Why not give yourself a quick win?  

So I’d start with attacking Credit Card A.  Assuming, again, that your monthly surplus is $1,000, it would take only 4 months to be paid off in full.  And once that’s paid, move on to Credit Card B, then C, then the Car Loan, and then Student Debt. In time, you’ll become a pro at this and it’ll get easier and easier to accomplish.

7 – Watch your credit score.  Improve on it.

By now, you’ll have reduced expenses, created a surplus, and started paying down debt.  This is fantastic! One thing you may be surprised to know is that your credit score will have likely improved, perhaps a little.  Its true! As long as you’re not late making your payments, or applying for more credit, your score would have likely improved! Since a portion of your credit score is made up of % credit utilization I.e. If you consistently maintain balances in excess of >30% of your credit limit, your score will be hurt.  Since your credit balances have an inverse affect with your credit score, your credit score goes UP when your balances go DOWN. Why might this be important? Lenders look at your credit score as a risk factor when determining whether or not to grant you the loan in addition to setting your interest rate! In other words, a higher credit score will generally mean you pay less interest!  Paying less interest means a higher monthly surplus!

8 – Start A Small Business

This is one of my all time favorites and alone can make you the most money and I believe just about anyone can do it.  Find a product or service that you can sell to others (People or businesses) on a consistent monthly basis.  Make it subscription based, i.e. the customers pay you a set amount on a monthly basis (Automatic payments, i.e. via Paypal Subscriptions are a favorite of mine), and in your business plan, make sure to consider how it might be scalable (I.e. what happens if you suddenly got 10x the customers, or 100x).  Perhaps the product is a newsletter that gives the reader value on a particular topic. Or perhaps its a service like bookkeeping. Bookkeeping is hot in 2019! Whatever it is, keep your expenses low, watch your dollars, and make a goal of eventually making it a hands free business, or do like I did and sell it for 7 or even 8 figures!

9 -Your monthly surplus money needs a job.

Make it a habit to invest your monthly surplus money regardless of the current market conditions. Buy Stocks, or save down the down payment on a rental property etc.  Look for passive income opportunities, for example, dividends or rental income and keep reinvesting that income + your monthly surplus. Through the power of compounding, your money will start to grow faster than a speeding bullet.

10 – Know the 4% Rule.  This is your Financial Independence number.

Last but not least.  Your Financial Independence Number is one you’ll need to know as a general baseline that you’ll need to be “Financially Independent”.  Your Financial Independence number is equal to your Annual Expenses times 25. Or, Monthly expenses times 300. So if say your monthly expenses is $4,500/mo, then the amount you need to be Financially Independent is $1,350,000.  This money will need to be invested in a conservative portfolio of dividend paying stocks, and short to long term bonds. This becomes the passive income that you’ll live on, thus making you Financially Independent, as I describe in detail in my newly released book, The Financially Independent Millennial.

Originally published on Surplus Academy.

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