Wealth is subjective, we all perceive wealth differently from the people around us. Some may see that wealth is having a high-paying job, a large number in their bank account, it could be a happy family or multiple trips abroad.
But what usually accompanies these thoughts are the hope that we will have enough money to do the things we want.
We could say that real wealth is being able to maintain the lifestyle you want, even if you stop working. For most, it is being able to do what we want, whenever we want, without the worry of expenses, bills and debts.
That is Financial Independence.
To be financially independent means to have enough money or net worth that you don’t need to work, if you don’t want to, but still be able to live the lifestyle you have or want through savings, investments and other income generators.
But how to start?
A main mistake that most people do is going through life thinking that money doesn’t grow. It is this type of thinking that usually holds people back from saving enough money to become financially independent.
No, it doesn’t grow on trees, but it can develop to become more than it is today.
Every pound today is more valuable than one 5 years from now.
The principle or logic behind this way of thinking is to think of money as a person, a living thing that develops over time. Money does not have to stand still, it can grow and develop, just as with people.
If you think of money as a person, you’ll quickly realize that it wakes up in the morning with you and goes to work. It can bring money to the table, passively, without extra effort from your side.
But, before your pound can go to work, the parent, aka you, must develop it.
Planning your Goal
One of the most essential elements in becoming financially independent is finding an End Goal. Whether it is retiring early, having a large home for a large family or traveling the world, taking a real look at your goals and when you want them will help you with your next step.
Understanding and stating what you want in life is crucial to becoming financially independent. Solidifying this in your head will enable you to be more disciplined and focused; knowing what you truly want in life, and what you need to make it happen, will help you understand that there is a beautiful rainbow at the end of the tunnel.
Once your goal and/or mission statement is complete, you can then look on ways to reach your goal.
How to become Financially Independent
Now that you have a better outlook on money and have landed on a true goal, you can get started on an action plan.
Luckily for us, Egypt actually is a great place to become financially independent. This comes from low living costs, high interest rates for bank certificates, and other factors.
Here are several ways you can develop yourself and your money to get you on your way to financial independence.
Pay Yourself First
A popular rule of thumb when it comes to saving is to Pay Yourself First.
Pay yourself first is a strategy that involves treating your savings account and investment portfolio as High-Priority bills that must be paid ahead of everything else.
Many who try to save money fall prey to overthinking when money is in their hands, or bank account, this is why the strategy works; it gets the money out of your hands, and into what you should consider a “No Touch” account.
For the best setup, have your salary account automatically transfer a set percentage at the very beginning of every month to a separate savings account or different investments. This allows you to save money without dealing with willpower, overthinking and have it completely out of mind.
Consider what is left as your full salary, one that you can use for normal bills and everyday living.
This is the most crucial part of saving. Forget the money in your savings for as long as possible, only use what is left after you’ve paid yourself first, and only that.
Start with the 3% rule
For most people, saving money feels horrible, as if all your hard work and efforts are being taken away; that you really need that extra 30 pounds because you really want that burger or sushi. And so, people don’t save, opting instead to buy.
This is where knowing your goal helps you keep focused; remember, a pound now can be 200 in a few years.
For those that have a difficult time saving, start by putting away 3% of your current income.
3% is a great starting point for saving beginners; it’s small enough that you won’t miss it and is just enough to become a nice amount after a while.
For those looking for a heavier return, you can save up to 45-50% of your income. This creates a challenge for many people, as your lifestyle may have to change heavily in order for you to meet your quota.
When choosing your percentage, consider your goal.
Calculate approximately how much is needed for your goal, then calculate how much you would need to save per month in order to reach that goal within the chosen deadline. Now you should have a rough idea of how much you need to save monthly, turn it into a percentage then add another 2-6%. This will provide an extra cushion for other necessities that may come up.
This is where your goal has a heavy role. When saving 15% or more of your current income, it becomes necessary to have your goal in mind to keep yourself in line and away from your savings account.
After you have calculated how much you are saving, you will automatically know how much your spending budget is by subtracting it from your overall income. As we mentioned before, this will be the only money you should allow yourself to use, so discipline is crucial.
Investing in your Money
Earlier we said that you should think of money as a living and evolving being, here is where you invest in their growth.
Investing in Egypt can be slightly difficult if you’re not well practiced and knowledgeable. Like in most countries, there are 2 main areas of investment: properties and companies.
Real Estate properties are a popular area for investing, simply because there will always be local demand.
Unfortunately, it is also one of the hardest investment routes to join into; but once you have started, it becomes an extremely lucrative and sustainable part of your portfolio.
Companies, or the stock market, is an easier route but requires a sharp mind. Egypt is seen as a popular investment opportunity by international investors, and it can be one for us locals too.
Check out this article by The Balance on “Benefits & Risks of Investing in Egypt.”
Investing in the stock market is easier for those starting out with a smaller savings account, while real estate investing is difficult when you first start due to needing a large starting deposit. The stock market is a great place to start, but the risk is high if you or your advisor aren’t watching at all times. Real estate is a sustainable and constant stream of investment and gains, but you will need to save up more to begin.
An important rule to remember, however, is to diversify your investments.
Don’t put most of your investing money in one business. By diversifying the assets you own, you will be able to survive safely in case the company/project fails.
For the safest bet, save your first 100K and either invest in cheap real estate before working yourself up to higher end buildings, or put it aside in certificates (we’ll explain certificates more in a moment).
The Difference between Saving and Investing
Although we write about both, there are fundamental differences between them, and how they should be used. More importantly, the reason why you should be doing both.
While investing will get you the most return, saving should be your main objective.
Your savings will be the foundation of your financial independence; your savings are what will be funding your investments, as well as your emergency funding, making them an essential element of your future.
Whether you save in a bank or in cold hard cash, your savings must be easily accessible; easy to grab at a short notice and quick to use with minimal delay for emergencies. You should always have a nice “cushion” of savings somewhere that you can immediately grab; this could be a good time to listen to your elders and also keep hard cash hidden somewhere alongside a savings account.
Just remember that if your money is in an account, it will get interest over time, depending on your bank and their requirements, but bank certificates are a better way of saving as they have higher return rates.
Most banks such as CIB and NBE have certificates in which you can put away a certain amount of money, that you cannot access for a certain amount of time, for high interest rates. This is a great way to grow your money while you continue to save more money before investing. Simply remember that putting money in certificates means that you might not be able to take them out easily for emergencies.
A general rule that is shared often is that your savings should be enough to cover all your expenses, bills and etc. for at least 6 months.
In case you ever lose your job, your savings should give you enough time to adjust and prepare without unneeded pressure.
On the other side, investing your money is using your savings or income to buy assets that you believe has a good chance of giving back over time. Investing involves a lot more effort; from researching prospects and companies, keeping an eye on the exchange to figuring out when to buy and sell. It can be more of a hassle and riskier than simply putting money in the bank, but the income generated might be much greater.
Talk to your bank or a stock broker to know more about the local market before making decisions on the stock market.
Although it may seem that way, you don’t actually need that much money to start your journey. Even then, having a lot of money isn’t always the best method to reaching your goal. The most important part of being financially independent is to be able to generate passive income, so you don’t have to work if you don’t want to.
The money will grow and develop under a watchful eye, and growing your income generators will enable you to reach your goal sustainably. Sustainability is the main goal of financial independence, allowing you to maintain your lifestyle whether or not you are actively working and adding money to your savings.
If you are looking to speed up the process, and willing to put more effort, you could look into getting a “side hustle” or side job to increase your income.
There is a lot more to learn while you are on your journey to becoming financially independent. We recommend websites such as the Balance and the Mad Fientist to help you, while local banks such as CIB have financial literacy materials as well.
Have any tips on becoming financially independent? Share it with your fellow readers in the comments!
*All content provided is the writer’s views and experiences