In Step 3 we looked at a few ways to get to the blue zone. If we've been following and implementing the steps mentioned so far, it's time to congratulate ourselves — we're officially in the blue zone! In this article we continue on from there to explore ways to achieve more financial independence on our path towards the green zone.

Goals

Our goals in the step are to first stabilize our stay in the blue zone, and then learn to go beyond the blue zone on to the green zone.

As we mentioned earlier, financial independence is not about having lots of money. We have no problems with having lots of money! — but financial independence is more about our money not getting depleted by our expenses. For this to happen, we have to invest our primary income — remember from an earlier article that primary income is what we get from our primary job or business — and the recurring gain/income generated from these investments (known as secondary income) is itself sufficient for all our expenses.

We have several options to go beyond the blue zone. Just like in any financial effort, though these steps will take time to pay off, the sooner we start implementing these the sooner we start seeing results. Just as finding sources of higher income is the step that gives the biggest benefit when moving from the red zone to the blue zone, income-generating investments is the main engine that moves us towards the green zone.

Actions

The steps to get us from the blue to the green zone can be listed as:

• Create a safety net.
• Understanding how investments work.
• Selecting investments.
• Starting to invest.
• Managing the investments.

We'll look at the first step in this article. Subsequent articles will go over the other steps.

Safety Net

Before we start investing, there's an important topic to discuss: creating a safety net. A safety net is even more important than investing. The safety net is there to protect us and help us get back on our feet if there are temporary financial blips on our journey towards financial independence. The two components of the safety net we'll talk about today are: emergency cash reserve and health insurance.

Emergency Cash Reserve

As the name suggests, an emergency cash reserve is a bank account that has enough ready money — to cover at least three months of expenses.

If you already don't have one, create a bank account and start funding it (as when funds are available) until you have enough ready money to cover three months of expenses. The emergency reserve serves a single purpose: if all sources of income and investments fail, we can still survive for three months and recover. The reserve is not to fund our next vacation or shopping spree!

The article Creating Emergency Reserves discusses several options.

Health Insurance

A comprehensive health insurance plan protects us from dipping into our hard-saved money to pay for serious medical expenses. Without one, we're at the mercy of the high-cost doctor visits and hospital stays, and our savings could easily get wiped out.

Each of us has different health conditions that need special attention. What is easily manageable for one person may be a serious condition that requires frequent attention for another. There are also different aspects of health insurance plans (vision, dental, heart health, senior care, rehabilitation, etc.). As the subject of health care choices are vast, it is beyond the scope of this article to discuss health insurance plan selection, etc. Your clinic and the information provided by health care exchanges are good places to learn about these.

Learning About Investments

Now that we have our safety net in place, let's start with understanding how investments work and the kinds of investments available to us.

Money grows only when invested, not when sitting under a mattress. This is because money itself rarely grows in value; it is the things that money can buy that potentially grow in value — things like homes, businesses, gold, etc. For example, I use my money to buy a home. Let's assume that the home appreciates in value over several years. I now sell the home and thus have more money than what I started with. I can view this as "exchange money for a home"; "wait for some time"; "exchange the home back for money".

The article Understanding Investment Types describes the basics of different investment types, their strengths and weaknesses.

The tool Investments Calculator can help us try out what-if scenarios.

Summary

We took a brief look at investments to learn how they work and how they can move us along the path towards greater financial independence. In subsequent articles we'll learn how to select and fund investments.