What does financial independence mean to you?
It’s sort of a “buzz word” that bankers and financial planners endeavoring to earn commissions off of your investments throw around.
Many people would say, “well duh, it means ‘being able to live without needing to work, and still pay for what you want’”.
Financial independence is not achieving the one-dimensional goal of going through the normal motions of stashing some cash in a basic way (i.e. only when you have extra cash, or as part of a basic IRA or 401(K) plan).
It implies that if you’re saving some cash on the side, you’ve done everything you could possibly need to do in order to have financial independence.
It also implies that financial independence is only something that can happen in the future, not now.
I would define financial independence as:
Currently living with a low amount of financial pressure and a high degree of flexibility, with the ultimate goal of lowering or eliminating the importance your job has towards ensuring your lifestyle and financial security.
I won’t spend this article preaching to you the values of saving and cutting expenses as the keys to financial independence.
Because it’s obvious, and we all know it.
The problem is we just can’t seem to make ourselves do it.
We can’t make ourselves do it because we don’t actually understand what’s costing us money, and what things are actually worth.
-Do you seem to run out of money, but don’t know where it went?
-Do you artibrarily spend money on things without conidering whether or not it’s a good deal?
Knowing these things are key to financial independence. Allow me pull out my accountant alter-ego and elaborate some more:
1. Overhead Costs
I think most of our financial woes come from overhead.
Though many of my friends would chide me for using the word without regard to its cost-accounting provenance, I here define overhead as expenses we think “just won’t go away” or “don’t matter”.
people all over the world are getting by just fine with a lot less money than you have. I’ve seen it all over the place, all over the world. I saw people in China who made less than $10,000 per year living decent, albeit frugal lives. So if you really think your overhead “just can’t go away”, I doubt it highly.
There’s a few different types of overhead that really get my blood boiling. Let’s talk about them here:
a.) Fixed overhead that is very difficult to remove.
Some of these are probably legitimate and should rightfully exist, such as expenses related to raising children, and having a place to live.
But a lot of these items are things you actually do to yourselves.
For example- I know tons of people who live 1/2 hr-1 hr away from where they work. Given the explosive cost of gas, their direct cash expenditures are through the roof. And let’s not forget the accelerated wear and tear on the vehicle. And that 1-2 hours of driving per day takes away from time that could be spent more usefully, such as making money.
I know people that needlessly live in expensive cities. They could easily relocate to less expensive locales without losing a valuable job or other consideration. But they don’t, due to the “nightlife”.
The problem with this sort of overhead is that it’s hard to get rid of once you have it.
It’s not easy to just move back to town, or closer to work. So the solution is to plan ahead, and include these costs in your calculations when evaluating your options. So when considering a new job, consider the additional cost in gas, in time, and in opportunity cost, rather than just the nominal dollar value of your salary.
b.) Overhead that you barely notice when it occurs, but that eventually comes back to be a pain.
Things like buying copious amounts of Starbucks or iced tea (my personal favorite) fall in this category.
It’s easy to think of something like buying a refrigerator as expensive because you spend $700 on it at one time, and to think of Starbucks as inexpensive because it cost only $3.
But the problem is that your Starbucks runs are a habit, not a singular occurrence, and as a habit, they inherently become an annuity of which Starbucks is the beneficiary, and you contribute to.
With the refrigerator, you can get 7 years of utility from a singular purchase. If you divide the cost of the refrigerator over the 7 years of its life, you realize it costs you 27 cents per day. Starbucks costs you $3 per day.
Now, which is more expensive; your appliances, or your coffee?
c.) Overhead that you don’t really understand exactly how much it is costing you (even though you see the dollar amount when it happens).
The point here is to see the cost of things as more than the dollar amount you spend at a singular point in time. That extra money you spend on going out, buying whatever it is that you want; all comes at an opportunity cost.
Money spent now could be saved and invested now, or used to start a business. Expenses are the loss of money now that could have been used to produce more money in the future. So a Louis Vuitton purse that cost you $1,200 now actually cost you a lot more than that. $1,200 invested at an 8% rate of return, compounded annually for 20 years is equal to about $5,400.
2. Realize the value of the things you buy.
I think hanging out in China is what really helped me with this one. Before I went, I was thoroughly convinced that the items I purchased at stores were “worth” what I was paying for them. Paying $70-100 for a shirt, on a regular basis, was acceptable to me, because I felt that was a reasonable price. And paying $13 to eat out was a reasonable price, too.
Upon going to China, I realized things were cheaper–a lot cheaper. Equal quality food easily cost half the price. Clothes were extremely inexpensive. Even Coke Zero, my personal favorite second to iced tea, cost about 75 cents for a bottle that cost $1.70 in the United States.
Of course, there are a lot of economic issues that make China cheaper overall than the United States, and it’s not my point to try to address that here. The point is that I began to suspect that things in America were more expensive…just because they were.
If you look at a big company’s financial statements, it’s painfully obvious why this is. I looked at a company in the retailing industry.
-Their revenue minus the amount they paid for their inventory was HUGE!
-But the amount of money they had at the end of the day (after you take out overhead, marketing, etc.) was tiny!
What you realize is this: the cost to actually make that shirt you bought was next to nothing, and you paid many times what it cost to make.
You were actually just helping the retailer subsidize their expenses.
Sure, that’s the way business has to work. But doesn’t that make you feel at least a little bit ripped off?
You are basically paying for, in addition to your shirt, your demand that it be displayed to you in an air-conditioned store (I bet you could buy it online), and most notably, your demand that the store spend tons of money marketing the shirt to you in the first place.
Start feeling ripped off!
Be angry that you’re paying companies to sell you something!
Take out that anger by relentlessly searching for good deals.
Stores such as Ross, Marshall’s, and the Dillards outlet stores are excellent ways to accomplish this goal. They sell great items of all kinds at prices way below retail. Put simply, they are awesome.
So the main point of this article is simple: look for ways now that you can work towards financial independence! Who knows, with these few changes, maybe you could be more financially independent as of tomorrow.
Photo Credit:© Melissa King | Dreamstime.com
To my friends in college, interested in entrepreneurship, I ask:
Have you heard any of these things before?
-”I want to start a business someday, but I should really wait until I have more experience.”
-”A college student? Starting a business? What do they know?”
-”Go get a ‘real job’ instead. The real world awaits.”
You probably think there’s validity to these statements because you do not, in fact, have much experience; and you do, in fact, wonder how someone with little experience could, in fact, be a successful entrepreneur.
That’s what I thought for years. It kept me from trying to follow my entrepreneurial dreams for years. Until it hit me:
College is probably the best–and most riskless–time to start mastering entrepreneurship. Why wait?
We’ve already chatted about succeeding in college for smart and motivated people. I pointed out that college is one of the most flexible times in our lives and that failure (from taking an interesting and important risk, but not succeeding) has low repercussions now (no kids, few fixed payments, etc.), and the importance of doing things to develop yourself rather than spending time partying or goofing off.
So intuitively, applying the broader concepts we’ve already discussed, entrepreneurship now makes more sense than entrepreneurship later.
But let’s dissect the specific issue of mastering entrepreneurship in college more specifically:
1. Key focus of a college entrepreneur: entrepreneurship for the process, rather than the result- prioritize learning about entrepreneurship over “waiting” for the “greatest idea in the world”.
During college, I got involved with a group of engineers who were designing a sports safety product. We applied for a grant through Arizona State University. I was the main man for writing the grant application.
This was the first time I’d written a grant, and I was essentially clueless. But I spent about 20 hours on the 2-page application, and did the best I could.
Months later, we found out we were unsuccessful.
Soon after that, we applied for another grant, and again it was my job to spearhead the application. This one was 10 times as difficult: we had to present financial projections, business strategy, market segmentation, etc.
This was entrepreneurship for the process. It wasn’t so important that we’d been unsuccessful in our grant. It was that I learned how to write a grant and a business plan in the first place.
How do you think I’ll do on future ventures, now that I had these 2 tries (and some other ones aside from this) under my belt?
Since I was in college, I could do these kind of things without it being a “big deal” (financially, emotionally, etc.) that we failed.
The bottom line: Even if you think your idea (or an idea you are working on) isn’t the “greatest” thing in the world, or if you think you’re not experienced enough to be successful, why not try anyway? Use the experience to learn so you can do better next time there is more on the line.
2. Some universities have amazing resources available for aspiring entrepreneurs.
Many universities–such as my university, Arizona State University–place a huge emphasis on student entrepreneurship. For example, ASU:
a.) Has an entire office complex devoted to student start-ups (SkySong), where start-ups get free office space and mentors.
b.) Has yet another center devoted to mentoring student entrepreneurs in the school’s main building (ChangeMaker Central).
Why pass up the change for all of this help?
3. Easy access to mentors.
Imagine life after college: you’re working 40 or 50 hours per week; you have a slew of other responsibilities; you’re swamped. And, it’s tough to meet new people, since you’re at work all of the time.
What’s your current situation? Not only do you not have the above problems, you are surrounded by people who want to help you.
I’ve spoken with professors–even the dean of my college–about my entrepreneurial ventures. In general, they’re happy to help, and are quite interested in what you’re doing.
But if you wait until later, it will be a lot harder to get this advantage.
Why not get it now?
Start mastering entrepreneurship now! Don’t wait until after college. If your goal is entrepreneurship, why allow yourself to be distracted?
I cover the broader issues associated with entrepreneurship (and success in general)–such as confidence, time management, handling failure, etc.–extensively in this blog. I recommend reading these:
-The Main Idea (in general, the way that successful and motivated people approach things).
-Understanding Failure (if you really think failing at your college venture is bad–and if you’re holding yourself back because of this fear–read this article).
-Building Personal Credibility (if you think your “lack of experience” makes you ineligible to be an entrepreneur).
A month or two ago, I was talking with a family friend who is in his mid-50′s. I was particularly interested in one comment he made about the work ethic of people in their twenties:
“Kids these days”, he said, are entitled, were not willing to work hard, and were more eager to complain than they were to work hard.
“But these days, there’s no loyalty. People should be grateful for their jobs; to even have a job in the first place!”
This isn’t the first time I’ve heard someone say that we should “just be grateful for our jobs”. The majority of Americans are dissatisfied with—or downright angry with—their jobs(1).
Clearly, we would all be unquestionably grateful for our jobs if we were all having a blast. So it’s likely that the people who feel the need to remind those who don’t like their job to “be grateful for your job” are actually just other people who don’t like their jobs either.
How can someone hate their job, but turn around and tell you to be grateful to have one in the first place?
Clearly, there’s a disconnect here.
If being “grateful for you job” only referred to keeping a positive attitude and not being bogged down with negativity, I would agree, and would have nothing to write about.
But from my observations, people talking about “being grateful for their job” usually mean it in the context of not liking their job, but coming up with “reasons” to be happy about it anyway.
Reasons I have read for “being grateful for your job”.
An article I found on the blog Smart Path to Happiness called “Your Job is a Gift—Act Accordingly”
(http://www.smartpathtohappiness.com/2009/06/your-job-is-a-gift-act-accordingly/) excellently describes common wisdom around this topic, such as (and I quote from the article):
“I hate to think about it, but we are all replaceable”
“…unfortunately [your company's] job is not to make you rich…”
“It stinks to know that you may provide your company with $60,000 in value but you’ll only get $40,000. It seems unfair but that’s why we have companies in the first place…”
“Above all, remember that if entrepreneurs didn’t take chances to stat companies then we would never have job opportunities in the first place. Working hard is how we tell the owners of our company, ‘thank you for putting your money, time and future on the line to start your company so I can have a consistent income to feed my family”
To me, this sounds like saying “I recognize that there is a problem, but I’m not going to do anything about it.”
Are these really the reasons that would motivate you to be grateful for your job?
“Being grateful for your job”, in the manner described above, is completely misguided.
This manner of thinking encourages you to believe that:
You job “happens to you”.
That is, that you really don’t have any choice about where you work or what you do to make money; so since you must be there, you should try to keep a positive attitude.
And as such, you can be replaced easily.
The only way to make money is through your current job.
In other words, you could not possibly be successful or make money were it not for your current job.
It is acceptable to be compensated less than you are worth.
Most importantly (and for the reasons above), you are powerless to change your situation.
Feeling that a problem is beyond your ability to rectify will likely cause you to not try to better your situation.
In other words:
Being “grateful” for a job you don’t like is pure rationalization, and simply a mechanism to excuse complacency.
How could it not be? If you truly believe “things happen to me”, “I’m worthless”, “I don’t get paid enough”, or “there’s nothing I can do”, would you ever try?
It goes back to the entire premise of my blog: mindset inspires action. If you truly believe that you should be “grateful for your job”, rather than actively looking for ways to make things better for yourself, know that you are causing your own problems, not someone else. It’s your fault!
In my own life, all of the things I have had success with–my radio show, my blog, and my endeavors with startup companies, to name a few—have been entirely of my own making, and a result of my strong mindset against doing things I don’t want to do.
Had I taken advice from the aforementioned article by “conceding” worthlessness, I likely would not have tried any of these things, and just “accepted” my lot in life as an accountant, destined to spend the rest of my life working for a public accounting firm.
But if you believe that you deserve better, you will naturally seek out ways to get better. Your mindset will inspire your action.
What it should really mean to be “grateful” for your job.
- What you should do about a job you don’t like is up to you.
Come to your own conclusions. Are you willing to take some risks or do something exciting in order to get a better job? It’s up to you, not someone else.
- If you consciously decide to stay at a job you don’t like, I would recommend being “grateful” for it.
Recognizing that your job and your reaction to it is a decision made entirely by you, you have a choice to do something about it…or to not do something about it.
If you decide not to do something about it, why not look for reasons to be happy about it? If you fall into this category, I would recommend taking advice such as from the quoted article above.
2. Recognize a job for what it is- an economic transaction wherein you sell your time in exchange for money.
In my article The True Nature of Jobs (well, soon-to-be article), I write that a job is simply an economic transaction: you sell time, you receive money. Jobs are paraded by society as being a “defining” element of our personalities and worth. To that I say: who cares?
The only thing that really matters—as far as having money to support ourselves—is receiving money. I recommend focusing your professional efforts in a broader manner: on producing value, rather than the narrow manner of selling time. Read my article on the True Nature of Jobs for more insight.
3. Jobs don’t exist for the sake of providing you with fun: that’s up to you.
Given that a job is simply an economic transaction, it is only natural that it exists without consideration for your happiness. Sure, big companies talk about benefits, “work-life balance” and “working at 80% of normal schedule” after having a kid.
But think about it: when you order food at a restaurant, what’s your number one concern: the quality of the food (the value you receive), or worrying about the happiness and lives of the cooks? Clearly, your concern is how good the food tastes.
The same goes for employers: their concern is providing value to their customers, and their customers, in turn, are focused solely on the value they receive.
So why would a job be tailor-made for your happiness, if the goal of your job is to provide value for someone else?
In short: looking to a company to “give” you a job that makes you happy is inherently makes no sense. So, the only way to find a job that makes you happy is to make that happen on your own.
If none of that convinces you, just be glad your job isn’t like this!
Citations: (1) (http://www.cbsnews.com/stories/2010/01/05/national/main6056611.shtml)
This article is the fifth article in a 5-part series about spending your time the way you want.
This is where the work actually begins: starting to change the structures of your life to allow you to spend time the way you want.
I can imagine some have a feeling of exhilaration or fear from reading those words. Too many folks just aren’t used to taking risks, and plainly don’t believe that they can do this. It’s not easy to challenge a lifetime of assumptions and limiting beliefs.
But that’s what you are about to do. Just think: you, on the verge of doing something great; something that will make you happy; something that will be a great example for your family, your community, and society. Isn’t that exciting?
It’s easy just to talk about spending time the way you want without actually doing anything towards that goal. If anything, it’s quintessential human behavior: much like when some want to diet, but do nothing at all to change their eating habits. So your struggles are common, but luckily are easy to overcome.
Remember that we said in previous articles that spending your time the way you want is actually hard work. But it’s enjoyable work, and most people don’t truly enjoy being lazy and lethargic.
It’s it’s time to move beyond the mindset and into action.
The real difficulty is making the first leap. Don’t mistake a reasonable fear of failure with fear of the unknown.
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Entrepreneurship is one of my favorite topics. I have immense respect for the men and women who have developed innovative ideas, taken gargantuan risks, and against all odds, proven and sold a product or service that has made the world a better place.
But entrepreneurship is shrouded in this veil of mysticism, and many people don’t understand it well. So, we try to start a business and fail, oftentimes because we didn’t understand the process.
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This article is first in a 5-part series about spending your time the way you want.
Without exception, everybody wants to lead a happy and fruitful life. That can mean different things for different people. But there is a common theme: spending time in the ways we want makes us happy. So it can be said that spending time as we want (either in business, in leisure, and specifically with regards to the tasks we undertake on a daily basis) is a large component of our happiness.
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