How to Become Independently Wealthy

Independently Wealthy

I recently received an e-mail from Jorge Izquierdo, Jr., a subscriber who complained that “all the material being covered [in The Palm Beach Letter] is for long-term investing.

What about short term?

Jorge says, “I’ve been trying to free my family and myself from the chains of slavery for far too long now. Show me the truth.”

Behind Jorge’s question lies the assumption that it is possible to acquire wealth through some “short-term” investment strategy.

As I’ve explained before, it’s simply not possible to quickly turn, say, $25,000 into $1 million by investing in stocks. But I have good news for Jorge. He can unshackle himself from “financial slavery,” as he calls it, in a relatively short period of time.

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Jorge – or just about anyone for that matter – can achieve freedom from financial slavery in just a few years. It does not have to be a lifelong process.

If you are in this situation, here is what you must do:

  • First, you must ask yourself if you are willing to give up the hope of getting rich quickly by investing.
  • Are you willing to accept the fact that you won’t go from broke to being a millionaire by investing in the next Microsoft?

If you can’t honestly and completely answer “yes” to those questions, you might as well go read another analyst… one who will tell you what you want to hear.

But if you are ready, the next thing you need to do is think about what you mean by:

Financial slavery.

What does that term mean? Most commonly it means two things:

  • You earn less than you spend.
  • You owe more than you own.

If you earn less than you spend, you are in a constant state of stress. You must put off or partially pay your bills. You must appease creditors. And all the while, your debt is mounting.

If you owe more than you own, you can’t buy a house or lease a car or get a loan from anyone other than your parents. (And what if they are dead or tired of helping you… or don’t have the money?)

Because you are in so much trouble, you can’t even think about taking nice vacations or retiring someday. Instead, you have to worry about losing your job. So you keep working and reading investment newsletters. But as each month passes, your financial situation gets worse.

It’s a miserable existence. But it doesn’t have to last. You can break the chains you feel attached to by simply recognizing and reversing the two “facts” mentioned above.

Problem No. 1: You earn less than you spend.

Solution: Spend less and earn more.

You can’t break the chains of slavery without hitting them hard with a big mallet. You won’t be able to gain the independence you want in a few years or less by cutting $10 here and $50 there.

My recommendation is to cut your expenses by 30% to 50%.

I know that sounds crazy. And it may be impossible in your case. But don’t dismiss the idea until you hear me out.

The primary factor in how much you spend every month is the neighborhood you live in. Your neighborhood creates the financial culture that presents the spending choices you make. If you live in a community of million-dollar homes, you will be looking at new BMWs and Audis when it comes to buying or leasing a car. When you go out to dinner, chances are, you’ll be spending more than a hundred dollars per couple.

Unless you live in a working-class neighborhood now, you can radically reduce your spending by moving into one.

I have friends and family members in this situation. They live in $350,000 homes in beautiful neighborhoods and drive luxury cars. But the reality is they are broke and getting poorer every month. They refuse to even consider the idea of downsizing, because they are simply too ashamed to do so. What they don’t realize is every month they try to “hold on,” it is making them poorer.

Moving to a less expensive neighborhood would be the quickest, biggest, and surest way to bring their spending down by 30% to 50%.

The other thing you must do to improve your situation is to earn more money. You should take immediate steps to increase your income by 20% to 50%. Again, I know that seems radical, but if you want a “short-term” solution out of financial slavery, this is just as important as radically cutting expenses.

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Problem No. 2: You owe more than you own.

Solution: Start owing less and owning more.

If you have accumulated a lot of debt, it means that you don’t see debt as financially dangerous. You must accept the fact that most debt you have is bad for you. There are only a few exceptions: mortgage debt when interest rates are low, and business debt when the business is sound and you are not personally liable.

The first step toward debt management is to get rid of every credit card you have, as well as any credit you have with your bankers. Use cash or debit cards for your shopping. Yes, that means there will be lots of things you can’t buy every month. That’s a good thing, not a bad thing.

If you have a lot of existing credit card debt, you need to consolidate it. Then work with a professional to pay it off at reasonable interest rates.
If you are lucky enough to have equity in your home, trading it for a cheaper one (see above) will accomplish two important goals: it will reduce your monthly expenses, and it will give you a chunk of cash that you can use to pay off debt or put aside as savings.

You must also increase what you own. And by that, I do NOT mean cars or boats or furniture or toys. I mean tangible assets that are likely to appreciate. Gold coins, income-producing real estate, and safe stocks belong in this category.

Every extra after-tax dollar you make by taking on extra work or starting a side business should be devoted to increasing your ownership of such assets. None of it should be spent.

Being financially independent is not about having a big house or driving new cars or taking fancy vacations. There are tens of thousands of Americans in that situation today who are financial slaves, just like you. They are in chains because they spend more than they make and owe more than they own. Their stress is just as great as yours, even though they may make more money or have more toys.

Being financially independent means having more income than you need and owing far less than you own.

It means knowing that you won’t be harassed by bill collectors or embarrassed at the supermarket. It means you have money put aside to take care of any emergencies that come up, and it means a savings account that gets substantially bigger every year.

Becoming a multimillionaire takes years. But breaking the chains of financial slavery can be done relatively quickly.

The hardest part is recognizing the chains that are binding you – earning less than you spend and owing more than you own – and deciding to do something serious about them.

Jorge, you have the plan in front of you now. It’s up to you whether you follow it.

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  • Chuck B.

    Great article today. This is financial literacy 101 and it’s so simple to learn. Unfortunately, it is noticeably absent in America; from the education system to family dinner tables to the halls of government.

    • Craig Ballantyne

      Thanks Chuck, greatly appreciated.

  • Spider2Luv

    Yeah, it’s pretty basic financial advice. #1 is like saying “don’t hang you’re hat where you can’t reach it.” But my problem comes about with #2 owing more than you own… I currently own a mortgage and a car which pretty much runs me about $3,000.00/month. I have a tenant which covers one and I live with my retired mom. Between the 2 of us, we can pretty much cover our expenses. However, last year March we were in a car accident where I was hit from behind. Thank goodness we’re both ok and the Insurance covered the car rental (1 month), the car repair and our physio rehabilitation. That’s great, but it’s been a year now and I’ve been home waiting while the Personal Injury Law Firm battles it out with the Insurance Agency. It’s been a long and tedious process and every account I own is running delinquent due to this. I waited a year for the mediation which just occurred on May 2, 2013 where the Insurance refused to pay out anything else…. it was a long and tedious process… Fine but during the year’s time that I’ve been home and living off my personal and savings to get us through and enjoying the much needed time with my mom which I’ve never done since I’ve always been working….and now finding myself depending on my mom’s income???…. I’ve NEVER done this in my entire life! I feel COMPLETELY inadequate and frustrated. I do believe Wealth begins with a mindset. I’ve always had this and being home has made me believe this even more. Now I have to resort to going back to work. I’ve been out of the Corporate Industry and honestly I find it hard to go back to that regular 9-5, getting someone else rich, being micro-managed blah blah blah …. you get the drift. I can’t explain this clear enough for my “old school” mom to understand so I’ve been hitting the pavement looking for work and it’s harder than I thought. I love to express my thoughts through writing and I’m usually the “go to” person with friends and family for advice on almost anything, but this particular situation has ME feeling trapped and in need of some advice….. what to do? I joined Toastmasters International in Nov 2012 which helps develop my Leadership and Public Speaking skills. This has become my outlet thus far and I’ve been elected VP of Membership just this month…. my passion is coming close to being found…. Writing and Public Speaking however in the meantime I need to generate income. The frustrating part is actually “finding a job” which my mom talks to me about EVERY DAY. As a matter of fact, our recent conversations have been only about money and it’s putting even more stress on us. What to do??

  • Sorry but I think the article is absolute rubbish. Conventional clap-trap.

    The truth is that you don’t need to be a politician, banker or drug dealer to be rich. As Roger Hamilton (Wealth Dynamics) explains,

    wealth = value x leverage

    So to become more wealthy, you need to up the value you deliver or increase the way you deliver this value ie leverage your time, money or skills.

    For me, I use network marketing to build a business where I help others to help the people they know.(leverage). The value I deliver is the means for my team to achieve their goals of spending more time with their loved ones and having the money to do so in comfort. A few extra vacations a year; fully paid out credit cards and loans; a reasonable home, pool etc.

    The direct sales industry has created a great many millionaires and the systems today are scientific and ethical. There’s no invitations to social events only to be met with someone with a white board drawing circles and arrows and pretending it’s a business. OK. So that company is only worth around $8billion a year (most of it in China) but do you know anyone who admits to working their plan?

    The reality is that most people do network marketing every day but …
    they don’t get paid for it. From the age of 5 we network and market ideas, toys, experiences then as we get older it’s bigger toys, better experiences and more ideas.

    Network marketing is my road to riches and since there are lots of people in the industry making the kind of money that I want, I am committed to helping my circle of contacts get what they want in life knowing that it’ll help me do the same.

    You can save more from your wages or cut your expenses all you like. The problem is that wages can earn you a living but only business profits can make you wealthy.

    A job might earn you a reasonable income on the face of it but with the system needs minions to work mindlessly so that the politicians, bankers and drug dealers CAN get rich. It’s a game workers can’t win.

    • Uriel

      Vic Cherikoff, I think your comment is absolute rubbish! I’m kidding : ), but how did it make you feel? I’m pretty sure it rubbed you in a wrong way, am I right?

      Everybody’s going to have different opinions and disagree, but what would you insult them for that reason? The beginning of your comment, to me, seemed rude and unnecessary.
      I can tell you are smart, and I’m pretty sure you could have worded your first sentence in a less negative way.

      I hope you are doing well ; )

  • Super article,

    I think if people can start swallowing their pride and consider these advices from Mark Ford, a lot can be saves from this financial slavery.

  • Michelle Sears

    I’ve been following ETR for years now and I have read lots of great advice but have not taking all the action that I could have. But this advice is so timely for me. I earn a nice income but I spend more then I earn and it’s frustrating. I am ready to follow this advice!

  • Absolutely wonderful article!

    Only one problem, though: it involves too much common sense.
    Sadly, this is an attribute that’s sorely lacking in today’s society…

    If I may, I’d like to offer another common sense approach that
    my parents passed on to us:

    If you are a two paycheck family, arrange your affairs so that
    you live on one income and save the other. And no, I’m not
    crazy. It’s easier than you think.

    Before the economic downturn, living on one income was virtually
    impossible. But most of us have had to tighten our belts and learn
    to live with less. The Great Recession hit all of us really hard.

    Now, money is cheap. Like 3.5% for a 30-year mortgage cheap.
    For Sale signs are popping up like weeds. New home construction
    is on the rise. Gas prices are coming down – not going up. And
    best of all, companies are starting to hire again.

    So when you think about it, my suggestion is not as farfetched
    as it appears at first glance. Like most things in life, it’s all about
    the choices we make.

    Whether you want to become financially independent – or to
    improve your station in life – the simplest solutions are usually
    the best. Today’s article demonstrates this point quite nicely.

    Very well done, Mark and Craig!

    • Craig Ballantyne

      Thank you, and great advice!

  • You’re welcome, Craig.

    Just for fun, I decided to crunch some numbers:

    Let’s say you and your spouse have good-paying jobs.
    Each of you earns $50,000/year, for a total of $100,000.

    You decide to buy a home with a $200,000, 30-year
    mortgage rate of 3.5%. The total payment with principal,
    interest, taxes and insurance falls between S$1,100 – 1,200
    each month. Let’s round up and say it’s $1,200. Depending
    on where you live, you can adjust this number up or down.

    Most mortgage lenders qualify borrowers with the 28/33
    ratio. This means your mortgage can be no more than 28%
    of your income, and your total monthly bills are 33% of
    your income. $50,000 a year equates to $4,166 per month.
    33% of this amount is roughly $1,375, leaving a balance of
    $2,791. And keep in mind, this is on HALF your income.
    Better yet, the mortgage interest is tax deductible…

    Now lets turn to the spouse’s income. Even after you deduct
    40% for federal, state and local taxes, that leaves $30,000
    on a $50,000 gross salary. Save this money for 5 years and
    you’ll have $150,000. In 10 years you’ll have a cool $300,000.
    No 401(k) accounts. No stock market. No shady investments.
    Just cold, hard cash in your bank account with your name on it.

    So like I said, when you crunch the numbers, my suggestion
    isn’t as off the wall as you might think. It’s not magic. it’s math.

    Thanks again for your feedback!

  • George

    Wonderful article, I live in africa I believe it’s applicable and I must say I am blessed by this great advice.

    Thank you Mark & Craig

  • Being “wealthy” is so relative… If you have a lot of expensive clothes and a new car but can’t pay your bills at the end of the month, what are you? Rich or poor? Being independently wealthy gives you a much better feeling about your life than having things and then paying debts.

  • Clevon

    Great article! I think that the best sentence of the article which also I think should have been capitalize and bold print.


    I also wonder how you divide the thin line of how to minimize the effect of downsizing in the perspective of environment. Most high economic environments provides safety and security also positive elements for families such as schools and overall health.

    As well as does downsizing shrink your dreams or perspective? Do you become comfortable with less?

  • Duane

    The article completely avoided the question…
    The guy was asking for ideas to generate good income so he could escape the 9-5 rat race.
    Mark, you usually do much better than this….

  • Another great post from the maestro himself. What an educative article.

  • Uri

    Become an auctioneer. Most auctioneers are self made millionaires. Its a proven way to become very wealthy.

  • Rich

    It is absolutely possible to grow your money very quickly if you have a willingness to learn, you build a solid strategy that protects you from losses and enhances gains, you make agressive investments, and you put yourself into a position to tolerate high risk without risking your current and future lifestyle. You should have a separate (adequately funded), longer-term investment strategy in place as an “insurance policy,” to protect your future interests prior to pursuing an agressive short-term strategy. Increase income where possible and cut expenses to the bone. Contribute as much money as possible to your risk capital each month. Swing trading small cap stocks is an excellent way to make great gains and allows you to compound often. This is the strategy I use and I have been averaging 65% annual gains over the past few years. I spent over a year studying stock trading and personal finance prior to employing this strategy. This can be extremely risky, and you could lose all your risk capital if you don’t stay focused and agile. In fact my brokerage called me to say they think I am being too risky, lol. But after I explained my whole plan and the other investments I have in place, they left me alone. If they had their way, I would be buying 100-share lots of blue chips all day watching my money do nothing but gather dust.

    • Moneybags

      What’s your overall return for all liquid assets (including your safety) over the last 10 years?