Introduction
Financial Independence means that money does not control your life.  Having Financial Independence means you make hard choices in your financial life that alleviate you of worry in the future.  In other words, money comes off the top of your list of worries so you can enjoy life and have flexibility in the life you live.  Being Financially Independent puts you in control of your money.

Below are some principals of living a life of financial independence.  Some of them apply to early careers and some apply to later in life.

The Brand of You
As you begin your financial life, the only thing you have to make money is your time.  Think of your career as a small business with one employee.  Your small business must be nimble and able to change if the market changes.  Your business must continually market itself as the best in that particular business.  That means following through on promises and raising your hand when the boss asks who wants to work this weekend.  You want to be the “got to” person.  

Building your business also means that you have to invest in your business by continually educating yourself, sometimes after hours, about the business you are working in.  You have to educate yourself about what’s changing in your industry and how that affects your small business.  You want your business to grow and become needed by your employer.

Acquire Skills Not Stuff (Including Credentials)
Things come and go.  Most things decrease in value immediately and are rarely worth what you paid for them.  Having a closet full of $600 shoes will not help you get ahead.

Building your library of skills makes you more valuable to your employer.  Getting credentials for the sake of the credential is not going to improve your worth.  For example, getting certified in a certain piece of software means nothing if you don’t understand that software and implement it to competitive advantage for your employer.  If your employer uses a certain piece of software and you become the expert in that software, you are worth more to them.

Save ‘Till It Hurts
Numerous studies have shown that the greatest factor in wealth accumulation is how much you save.  People that put a significant chunk of money into a slowly growing investment ALWAYS beat somebody that puts less into a “better” investment.  I like to use the mantra that you “save until it hurts, and then 1% more”.  In other words, saving is hard work.  Saving money is a lifestyle choice that you should be proud of.  

Whatever you decide to save, think to yourself, “Can I save $20 more?”  The beauty of saving more is that if you find you can’t do it, you can always do less if saving that much makes life too hard.  If you have bills that eat up your whole paycheck, there is no “more”.  You become a slave to your paycheck and you won’t be able to get out of the cycle.

The most successful savers automate their savings.  This can either be done through automatic 401(k) savings, automatic monthly investments, or automatic deposits to your savings account.

Start Early to Harness the Power of Compounding
The earlier you are able to dedicate a portion of your monthly income to your savings, the more you will accumulate over time.  Money earns free money through compounding.  The longer you have your money working for you, the more it will earn.

Don’t Give Away Free Money
Everybody loves “free” money, right?  If your employer offers a 401(k) with a match, you should make it your priority to save up to the maximum that they will match.  For example, if your employer matches 50% on the first 6%, that means that they will kick in 50% of every dollar you put in up to 6% of your pay.  Let’s say 6% of your pay is $100.  If you put $100 into your 401(k) they will put in $50!  That is FREE $50!  If it’s FREE, it’s for me.

Conversely, we work hard for our money and we expect our money to work hard for us.  Does the bank loan you money for 0% interest?  Does the government loan you money for your education at 0%?  No.  That’s why we don’t loan the government money at 0% interest in the form of tax withholding.  If you have $200 EXTRA a month deducted from your paycheck, you are loaning the government the use of that $200 for FREE.  Granted, you’ll get back $2400 at the end of the year, but the government is using your money and loaning it back to you as a student loan for 3%!  What a racket!!!  Strive not to overpay the government more than $500 and use your own money the way YOU think is best.

The Only Thing You Need to Budget is Your Savings
Many people will advocate that you need a budget and stick to it in order to succeed financially.  I think you need to budget your savings and the rest will work itself out.  Your savings and investments are top priorities. They get the first slice of the pie when it comes to paying bills.  Everything else can get split with what’s left after you save and invest.  

Don’t take that 100% literally because you have obligations like loans, heat, water, and other bills that you need to live.  The expenses you don’t have to budget are your discretionary expenses like cable, cell phones, entertaining, food, and other things where you spend money.  The amount you can spend on those things is how much ever you have left after you pay your obligations and your savings.

Debt Kills Freedom
Monthly revolving debt is shackles around your neck.  Not all debt is bad (ie. Student Loans, Mortgage), but all debt must be attacked as aggressively as your savings.  

Paying the minimum payment is something to avoid.  Each and every payment of a revolving debt should be paid at the rate of 150% of the payment.  That means if you have a car payment of $200 a month, you should be paying at least 150% (or $300) a month on it.  When you sign up for a new loan, decide if you can afford it if you’re paying 150% of that payment every month and how that will affect your lifestyle.

Credit Score as an Asset
Everyone uses your credit score and credit history to determine your credit worthiness these days.  Whether you are signing up for a new cell phone plan or getting car insurance, they will check your credit history.  You must protect your credit score and history as an asset.  Higher credit scores will mean you pay lower insurance bills and less interest on money that you do borrow.  A credit score is protected by paying your bills on time and not using more than 50% of your available credit.  Think about what impact charging $2000 on a credit card with a $3000 limit will do to your credit score (fyi, it will lower it).  Strive to have a FICO score of 720 or above.

Using Credit Cards is Great
Credit cards are a great way to regulate your cash flow, IF you can pay it off at the end of the month.  If you can’t pay it off at the end of the month, that $100 pair of boots is going to cost you $118 after one year and $139 after two years of making minimum payments.  If you find yourself not being able to pay off your credit card at the end of the month, your spending is out of control.

Priorities

Six Month Reserve
You have a certain amount of flexibility and safety when you have something to fall back on.  You should start working towards having six months of your expenses in a safe savings account.  It’s not going to make much for you, but you’ll have something in the case of an emergency.

Retirement Savings with a Match
We don’t give up free money.  Once you have a reserve built up and are eligible to start receiving a match in a 401(k), you should maximize the amount of your 401(k) contribution up to the point of the match.  For example, if your company matches 50% on the first 6%, that means that you put 6% into your 401(k) and they throw in another 3%.  That 3% is FREE MONEY.

Pay Down Debt
Monthly Revolving Debt kills your chances for financial freedom.  Once you build up your six-month reserve, the money that was used to setup your reserve should go to paying down debt.  I would make it a goal of paying off your student loans in 5 years or less.

Windfalls
A windfall is a one-time condition in which you receive some money.  A windfall could be a bonus, tax return, gift, lottery winnings, or inheritance.  Windfalls happen once or very infrequently.  The financial independent use windfalls to supercharge their savings goals.  

The same principles apply to windfalls that that apply to regular earnings, except you don’t have to pay bills out of a windfall.  If you take 10% of your windfall to do something frivolous, it’s not the end of the world, but the bulk of your windfall should go to your goals.

For example, let’s say you get a $2,000 from your tax return (If you are, see above under “Don’t Give Away Free Money”).  If you want to take $200 and go to the casino for a night out with friends, go for it.  But $1,800 should go to paying down debt or adding to your six-month reserve.

Lastly, just because you get a windfall this year does not mean you will get one next year.  You might, but you might not.  Never spend a windfall before it hits your bank account!

Pitfalls
There are two things that kill young people on the road to financial independence.  The first is over-spending.  Spending money to look good or impress other people is wasted money.   These people are not going to help you pay your mortgage or student loan, who cares what they think?  Saving money may be “lame” when others are partying, but you have greater goals in life.  Don’t be the “big shot”, be the person in the crowd shaking their head at others extravagance.

The second thing that financially hurts young people is not taking advantage of the opportunities presented to them because of their age.  Compounding is a very powerful tool, use it to your advantage.  The earlier you start saving and investing, the more money you will make in the long run.  In addition, it will burn good savings habits that will stay with you for a lifetime.

Have a Little Fun
Last, but certainly not least, remember to have a little fun in life.  You’re saving money for the purpose of becoming financially independent.  You also have to enjoy life along the way.  Give yourself permission to buy something frivolous every now and then.  Experience places in far away lands while you can enjoy them.