There is now a number to Financial Independence and experts have placed it at 25 times of one’s annual expenditure. Yes, you read right, 25 times! This means that if your monthly (family) expenditure is KSh15,000 ($150) per month, you need to have KSh4,500,000 ($45,000) in savings to safely say that you and yours are financially independent. I haven’t done the math neither do I have the courage to do it even though Resolution 316 (see previous post) alludes to that. I am busy, however, trying to figure out my ‘real’ monthly expenditure. It’s an exercise I haven’t done in years but reckon that if I monitored every detail, I could be able to find and repair areas of leakage.
AndroMoney. I am so glad I came across this personal finance tool available on mobile and web platforms that helps individuals manage their finances. It is simple to use, has accounting fundamentals built within it and most importantly generates reports. Can you imagine getting your cash flows displayed on bar graphs, pie charts and trend analyses in amazing colours and all for free? With the current raw data of two months, my spending patterns are being revealed, red flags are already up and it is becoming easier to say no to chocolate – which by the way – I track independently. Dentist’s orders! 🙂
Tracking expenditure on a daily basis is no joke. It takes a lot of willpower but so does any struggle for independence. What excites me about this subject of financial independence is that it has now been broken down in levels. This makes it easy for journeyers to identify where they are at with their money and find ways of getting out of negative situations or moving into better positions.
- Financial Dependency is where living expenses and / or debt payments exceed income. Am I living beyond my means? What do I need to do to bring down my expenditure? Or how can I make more to ably meet my (family’s) needs?
- Financial Solvency is where one is current on all debt payments and bills without depending on anyone else. The use of budgets (however simple) cannot be overemphasized in making this possible
- Financial Stability is similar to financial solvency but also includes having 3 – 6 months in emergency savings. Building such a fund is not easy but stashing away the cash in an interest-bearing facility – with time – makes the journey meaningful
- Debt Freedom. In this level, one is either completely free of debt or free of high interest debt or has paid all debts except mortgage. I think this is the hardest stage to leave, but if other people have left it, then anyone else can
- Freedom from Employer is the ability to move from a higher paying, stressful, less satisfying job to a lower paying, less stressful, more satisfying job without affecting your retirement benefits. Frugality makes this possible
- Financial Security. In this phase, one leans on cashflows from investments to meet annual basic needs and can survive for some time until another employment is secured. It is therefore imperative to begin to think of investments from the Financial Dependency level. I stumbled upon David Bach the other day and he says one of the reasons why people don’t invest is because they feel they don’t have enough to start. “If you can buy a cup of coffee for $5,” he argues “then you can invest”. KSh300 ($3), for example, will allow you to purchase from the Nairobi Securities Exchange 100 Mumias Sugar Company Shares. Bach strongly advocates for participation in real estate
- Financial Flexibility is the halfway point to full financial independence i.e. you have 12½ time of your annual expenses in savings. Can you imagine your emergency fund growing to this size?
- Financial Independence is the level with which this article begun with and you may wanna scroll up to take it in once more 😉
- Financial Freedom. Next Level Life YouTube series, from which these levels of Financial Independence have been drawn, describe this level as having more than 25 times in cashflows from investments. Perhaps 50 times!
- Financial Abundance. In this level, one has more than they will ever need and even if the economy plummets, life will go on as usual. I bet philanthropists lie in this level. That doesn’t mean we cannot give. I think giving is a virtue we can all pursue in all seasons of life
EASY? Even after reading this stuff for a second or third time, I find some of the concepts (especially the latter ones) quite difficult to actualize. Baby steps! Baby steps. It is also very easy to get fixated with getting to Level 10… But remember the Lord your God, for it is He who gives you the ability to produce wealth, and so confirms His covenant, which He swore to your ancestors, as it is today. ~ Deuteronomy 8:18
picture credit here