If you’re like many Americans…you watch TV and promoters and marketers want you to build a lifestyle that they want to sell you. A big house, a sports car, a luxury vacation, it’s all part of the American Dream. While these things are certainly symbols of status, they don’t necessarily translate to financial independence the way you might expect. A person could have these things but still have very little financial independence outside of their income. The key question to ask when thinking about your financial stability is:
If I lost my job tomorrow, how long could I last before running out of liquid money?
This means without resorting to drastic measures such as selling your home or tapping into your retirement savings early. Your answer to that question will provide you a better understanding of your financial independence outside of your income or your possessions. Living a lifestyle that requires a high income to maintain is not necessarily sustainable, especially when it comes time to retire. Most folks should be thinking Toyota not BMW.
If the answer to that question frightens you, here are some steps to consider. Reduce unnecessary lifestyle costs and develop a monthly budget to see if there are any items that can be eliminated. Focus on paying off large debts such as your mortgage or car loans so that you are not trapped by your possessions in the event of a financial emergency. Build up a supply of cash that you can rely on in the event of an emergency by creating a reserve fund that can last you 6-12 months at a minimum if you lose your job or your business fails. Shifting the focus from lifestyle to sustainability and longevity is a healthier way of thinking about financial independence in the long term.
Cheers!