With the release of Van’s new book “Safe Strategies for Financial Freedom”, many people are now asking the question--- How Do I Take The Steps To Become Financially Free? Conceptually, the task is very simple in that when you make your passive income greater than your expenses, you no longer are required to work for money.
This passive income keeps arriving regardless if you work or not. Some people like to refer to it as mailbox money since it just keeps coming in. Of course you may chose to work or not, but you now have complete control over that decision. In my opinion, that is True Financial Independence regardless of if you are making $2,000/mo or $20,000/mo, as long as the income is larger than your expenses.
A number of years back, while I was a professor in electrical engineering, I started taking the steps toward achieving financial independence. I had read several books and completely understood the concepts behind financial freedom and was even getting exposed to different methods of making passive income.
Two things started happening at the same time. First, I became completely convinced that I wanted to take the steps towards financial freedom and give myself the option of either continuing in my job or pursuing some of my other interests. Second, I became overwhelmed with all the pieces that seemed to be required to produce financial freedom.
Thoughts such as…
- how will I generate income,
- how will I reduce expenses and taxes,
- should I start a business,
- should I pursue real estate investments,
- should I trade for a living,
- how do I safely transition out of my job,
- and what will people think…
all started rattling through my head. At the same time, I had several friends and colleagues who were all reaching the same conclusions that the 9-5 routine was not what they wanted and were going through the same struggles as me.
To shorten a long story, we each found it difficult to implement the principles of financial freedom; everyone’s situation is different and you will have your own varying factors and constraints. As my interest in this subject continued, I began having discussions with many people about Financial Independence and what it takes to implement. Some discussions were with people who had already achieved financial freedom, others were with those that were on their way, and yet others with people who had just been exposed to the concepts of financial freedom.
I have also had the benefit of having many of these discussions with Van Tharp and the staff at the Van Tharp Institute. Over time, we have collectively created the Five Steps To Financial Freedom. This process seems to best capture all the steps that each of us have taken on our own journey’s towards financial independence.
Starting from the bottom, picture yourself walking up the following steps towards financial independence.
Step 5 - Becoming Financially Independent
Step 4 - Implementing The Plan
Step 3 - Avenues Of Income
Step 2 - Laying The Foundation
Step 1 - Exposure To The Concepts Of Financial Freedom
Like any education plan, each step builds the critical foundations necessary to excel at the next higher stage. While you can certainly “skip a grade” and go faster, if you don’t have the skills and tools necessary at the higher levels your odds of succeeding are reduced substantially. Let’s see what really happens in each step that then allows a person to rapidly move forward toward financial independence.
Step 1, Exposure to the concepts of financial freedom...
...consists of two primary parts:
- learning that there is another way to “design” your life other than working 9-5 and retiring with the gold watch and
- convincing yourself that this might be possible to achieve for yourself.
Learning other ways of thinking about your finances is something that most people encounter in a book. If you have read Van’s new book (Safe Strategies for Financial Freedom), then you have certainly been exposed to the ideas of passive income and the financial freedom number. Now the $10,000 question---Do you believe you can implement this in your life?
For people that I have known, this belief comes from seeing other people who are achieving financial independence via their investments or businesses. As you become more attuned to these concepts, you will probably find many people in your community who actually implement these principles daily.
Another key for convincing me was that I had to identify high (15%-100%) investment returns that could be achieved by normal people like me. I learned just enough about passive investments to then convince myself it was possible and that I would learn more as I went. If you firmly believe that achieving financial independence is possible, then you are now ready for Step 2.
Step 2, Laying the foundation...
...requires the person to gain an understanding in three important areas:
- Gaining control over money habits such as spending, debt, and systematically investing in their future wealth;
- Assessing where they stand financially; and
- Assessing what they will change to become financially independent.
In my opinion, most people who get lost on their journey to creating financial independence get lost at this stage. Without a clear set of financial fundamentals to fall back upon and an understanding of where they are financially when they start, creating a straight-forward path can be very difficult. Fortunately, the Van Tharp Institute is creating various tools to help you cross this important stage.
The good news is that Step 2 is where many find out how simple it is to create financial independence for themselves. For many, this may be as simple as redeploying some poor performing assets into cash flowing investments with good returns. For others, this may involve reducing taxes via proper entity structuring and then adding in a few passive income producing assets. For yet others, this may involve creating a business that is operated mostly by others and hence produces passive income.
Many of these “discoveries” can be made by playing financial “What If” games once you understand your own financial situation. All of these “What If” scenarios is why the Van Tharp Institute has recently introduced the powerful software tool called SafePathsTM To Financial Independence, that allows you to accomplish many of the tasks in Step 2 with ease.
Step 3, Avenues Of Income:
Once you understand where you stand financially and a rough idea of how you will get to where you want to go is developed, then you are ready for the next step called Avenues Of Income. Regardless of what you do with expenses and taxes, you will always have certain income requirements that have to be matched with passive income.
Usually, when people first become exposed to Financial Independence concepts, they immediately jump to starting to create passive income. Without proper money handling skills and a clear vision of where they are headed, this usually results in several false starts.
There are multiple ways to create passive income and I will be summarizing them in future articles. People who are actually very successful in creating these income sources will all tell you the same thing: it requires work, skill, and knowledge to set these up properly. The rewards are great but you still have to carefully match what you want to create for yourself and the type of passive income that you pursue.
The major objective in Step 3 is to simply learn about the different types of passive incomes and logically decide what is right for you. You might learn about things like residential real estate, commercial real estate, mobile home notes, tax liens, web sales, royalties, licensing fees, and the list goes on. The hard part is trying to decide what you want to do when you have not actually been exposed to an area.
This is why we are excited about a new product line that will soon be introduced called SafePathsTM Case Studies. For each passive income area, you will get to watch as a person progresses from a beginning understanding of financial freedom, to being a novice at a certain technique for generating passive income, to becoming a true expert in the area. By reading these case studies, we believe you will really start to appreciate the different paths that you might create for passive income.
Step 4 & 5, Implementing The Plan & Becoming Financially Independent:
Contrary to popular belief, Steps 4 & 5 are typically the easy part of the process. If you have developed a solid foundation and have really researched what you want to create, then it typically is much easier to then implement the plan. In Steps 1-3, people reach a point that we call in education the point of maximum confusion. In Stages 1-3, people have been exposed to multiple concepts that they have not yet completely digested and everything seems very complex. It is after this point that people then start to put all the puzzle pieces together and then they wonder why it was ever so confusing.
The process of achieving financial freedom is not difficult but does require several pieces to be properly put in place. From my own personal experience, I can’t encourage you enough to take advantage of the wisdom of others who have taken the path before you to help you get through Steps 1-3 in the most straight forward manner possible.
