by D. Victor

Created on: January 12, 2009   Last Updated: January 15, 2009

Some goals in life cannot be achieved in a single-leap. Financial independence- the Holy Grail of financial planning- is one such goal. It means so much more than having a lot of money to finance a fancy lifestyle. Neither is it about working for a high monthly income (that may disappear with the job that you hold).

Financial independence refers to having a money system in place for you that is secure and income-generating. Further to that, the concept is based on you; your needs, lifestyle and attitude to money. Your steps to financial independence must begin at the beginning, but you must know where the beginning is.

Debt elimination/ avoiding bad debt

"Capital= Assets Liabilities". Using this representation of the accounting equation, it is easy to see that you can dig your assets into a hole with avoidable or bad debt. Financial independence- or being on your way to it- requires that you are not steeped in asset-crunching debt.

Bad debts are normally consumer loans or debt used to finance a lifestyle beyond what you can afford. Good debts would actually increase your aggregate asset value when they are paid off. If you have significant "bad" debt, you have to leap out of that hole before you can march towards financial independence.

Protecting your assets

Your progress will be negative if you take a couple steps forward and a few more backward. If you fail to protect your assets, you may find that the progress you made can be wiped out by certain disasters. Theft, natural disasters or critical illness are just some phenomena that can erase some or all of your life savings and property. Whether it is general insurance, health insurance or portfolio diversification; risk-management techniques are vital. They prevent all your steps towards financial independence from becoming undone.

Financial goals

What does money mean to you? What level of income are you comfortable with? The answers to those questions- and other pertinent questions- would help you discover what financial independence means to you. Home ownership, an income replacement fund and liberation from liability are some of the goals that you may have in mind. Unlocking the power of financial goals is necessary in achieving an important, long-term milestone as financial independence.

Budgeting

With financial goals, you have your target in mind. Budgeting helps you to allocate resources to meet that target systematically. A budget is a road map that gives you a clear idea of what is required to help you to

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