Question:
I want to be financially independent. Where should I start?

Answer:
When we break it down, finding the means to become financially independent starts with a very simple question: Am I spending less than I?m earning? And if so, how am I saving the balance?

Most of us tend to think that we know the answers to these two questions. Let?s test this. You should be able to answer the following question in the next five seconds: exactly how much do you spend each month? If an immediate answer does not spring to mind, it might be a good idea to revisit your personal budget.

Although we all mean to do the right financial things, many of us never draw up a personal budget (click here to learn how to budget) for two main reasons: we fail to see why it?s important and we wither in the face of the admin involved.

So let?s look at the questions more closely. Money, like the ways of a woman, is a mysterious and secretive thing. Mostly, this mystery is accounted for by the Credit Card Gap (for the money, not the woman!). I?ll explain this by walking through a quick 10 minute budget. To prep, you will need to go into your internet banking account or grab a bank statement. Place a blank to-do list next to it.

Drawing up a basic budget works like this: take your bank statement and see what your net monthly income is. From this, the first thing we do is deduct our fixed monthly expenses, which will probably be debit order based. This will be made up of items like your bond repayments or rent, levies, car repayments, municipal accounts, phone bills, insurances, gym memberships and medical aid contributions. If this becomes a very long list, note the items that are not essential needs. On your to do list, note action one as stopping these expenses.

If a sizeable portion of your fixed expenses is going towards insurance (both short-term and life insurance), note action two on your to do list as review insurance. For short-term insurance this can be done by phone. For long-term insurance, seeing if you can rather increase your group life cover (if you have it through your employer) should be a bit cheaper. You will need to see a properly qualified financial adviser for guidance on this.

The next area to look at is your variable expenses (largely made up by the Credit Card Gap). This is where the wheels come off for most of us. Items like petrol (click here for advice on saving petrol), clothing, groceries (click here for tips on spending less on food), cash withdrawals (click here to learn how to pay less bank charges) and rest and recreation items are like locusts, or fat clowns. A bit scary and prone to devour whatever they can. This is where you can make the most radical difference to your wealth building strategy.

Look at the items on your monthly bill and see which of them are need-driven and which are want-driven. See what the need-driven items cost you. Make a third note on your to do list to find cheaper ways to meet the needs. Buying in bulk, going to different shops, paying in advance or joining a lift club are examples of what can be done to accomplish this.

It can?t be all work and no play, though. Consider taking whatever you manage to save and spending that on your 'wants'. If you can afford to, you can set aside a further small amount for one other 'want' per month. Now add up the total variable expenses and pay this into your credit card account every month as soon as your salary lands. Whatever is left must be saved. Because we are weak and mortal, put a debit order in place to make sure that your savings happen as they should. Add this to your to do list.

On page two: Article continues and Henry discusses how much you should be saving...