I want to share seven steps I have identified that are crucial elements to obtaining “financial independence”.
1. Get clear – Know your numbers.
If you are in any way in business for yourself, you need to be clear on your numbers. What are your real assets, liabilities, and risks? You need to be very clear as to what you own and what is associated with it.
I have been blessed to work for eleven years with an administrative assistant who enjoys reconciling bank statements and entering all the information into QuickBooks. As a result, she has tracked over the years the millions of dollars that have passed through the various accounts for my different companies. For example, she can tell me to the penny how much money I spend at Chick-fil-A in any given period of time, or how much money I have spent at Marriott hotels or on Southwest Airlines. That kind of information is vital to monitoring your progress toward financial independence. That is what I mean by “get clear”. Know what is coming in and what is going out. After all, it’s your money, and you need to know what is going on with it.
When it comes to “getting clear” and knowing our numbers, most of us probably overinflate the value of our assets, and, being entrepreneurs and/or investors who are by nature risk takers, we minimize the true extent of our liabilities. This is why you need to have an accurate balance sheet.
Your balance sheet, however, may not be able to convey your risks. You need to know your non-documented risks, the things that are not promissory notes, personal guaranties, etc. Consider what risks you have in your various business operations so you can systematically and proactively engage in conduct to mitigate or limit those risks.
For example, I recall waking up one morning and realizing that while I had really good premises liability insurance on the building in which my office is located, I didn’t have any insurance on the contents of my office because it wasn’t property owned by me personally that my homeowner’s policy would cover. It was property owned by my law practice, so I bought a second insurance policy insuring the personal property of my law firm.
A few years after making that insurance purchase, it turned out to be a very prudent decision, as we sustained a massive property and casualty claim. I was able to access the full benefit limits on the policy insuring the contents/personal property owned by my law firm. When you do your assessment to get clear and look at the risks that threaten your assets, ask yourself how you can insure or mitigate against those risks.
I hope you will enjoy this series I am doing on the path to achieving financial independence.
