The Sure Fire Way Of Achieving Financial Independence
Finding work to earn your way through life is sometimes called financial independence
. This may be true to some extent, but true financial independence means not having to rely on anyone or anything financially.
Theoretically, working for a living means that one is independent of his parents support, but is still reliant on his job. The true form of financial independence could hypothetically be achieved instantly by winning the lottery, inheriting a fortune, or making a fortune through the stock market, an invention or your talent and then retiring early.
However, unless a person is exceptionally lucky or has unbelievable talent, he will have to work towards financial independence just like everybody else. Most of the people who are truly financially independent are the people who worked for it.
By working towards a so-called nest egg, these people save enough money to live comfortably independent of anyone or anything. Another term for this type of people is retiree. Aside from the filthy rich, only retired people are truly financially self-reliant.
There is no dark secret to financial independence. It only means saving enough money while working in order to be self-sufficient later. The key is in saving money. Nevertheless, one cannot save by keeping money in a box safely hidden in the garage and hope that the money will be enough for a comfortable life later.
In order to achieve your goals of financial independence, one has to save money in a bank and let that money earn even more money. Granted that there is a small risk in keeping your saving in a bank, one still has to take advantage of the interest rates given by the banks.
A 3% annual interest may not sound much, but when interest is compounded, a small amount could turn out much bigger in time. For instance, a $200 deposit will earn only $6 at the end of the year under a 3% annual compound interest. By the end of the second year, that $206 will earn not only $6, but $6.36.
Going on, that $200 will have earned $68.73 by the 10th year and will earn $161.22 by the 20th year. By this calculation, money earning a 3% annual interest rate will double by the 24th year. Using this calculation as a basis, it follows that a person who deposits money at the age of 20 will have doubled his money by the age of 44.
If a person kept depositing $200 every month at a bank that gave him a 3% interest rate until the age of 60, he will have saved over $100,000. These figures are based on minimum amounts just to give an idea of how much money could be saved.
A 5% interest is not unheard of and it is very possible to save more than $500 a month if one really tried. If the company accountants were instructed to deduct $500 from yoursalary and deposit it to his account, the employee would make do with what he gets from his paycheck and will live his life accordingly.
In the meantime, his money would continue to grow and by the time he knows it, he will have enough money to be financially independent. So the moral of this story is simple: save money and be financially independent in time. There may be short-cuts to self-sufficiency, but saving is the only sure way to get there.
by: Dan Cavalli
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