Financial independence means having enough savings, investments, and liquid assets to live a chosen lifestyle without worrying about income. Understandably, it’s a life goal for many people. But as far-fetched as it may seem for some, it’s a far more feasible goal than many realize. Furthermore, it doesn’t necessarily require you to be bring in a hefty paycheck every month. However, it does call for planning, determination, and a degree of sacrifice. It also means knowing what kind of lifestyle you want for yourself in the years to come and figuring out how to sustain that on the money you put aside or invest today. Here we’ll go over the seven steps you can start working towards today to achieve your dreams of financial independence.
1. Define What Financial Independence Means for You
Financial independence is far too vague a definition to be classed as a good financial goal. That’s because said definition will mean something different to each individual, and only you can decide what it means for you. For instance, do you want to live a life of luxury, or are you willing to be quite frugal? Do you want to quit your job and retire early, or do you simply wish for a degree of autonomy?
It pays to be as specific as possible when defining what kind of financial situation you are looking to create for yourself. That means calculating the amount of money you need to set aside to live the life you want and setting yourself a realistic time frame to achieve this. Then break this goal down into smaller steps. Also, don’t forget to reward yourself when you reach these!
2. Pay Debts Efficiently and Quickly
Financial independence and debt are incompatible, and while it is possible to start saving alongside debts, you’ll want to pay them off as quickly and aggressively as possible. They will render investment and saving gains essentially redundant, reduce your financial options, and generally cause stress.
Of course, paying off debts will likely require some degree of patience, but you can also be proactive. If you can, always try to pay more than the monthly minimum. You can also create a temporary emergency budget to reduce your outgoing to the absolute bare minimum to get in the clear as quickly as possible.
3. Build an Emergency Fund
A sudden emergency can ruin your best-laid plans if you are not careful. So before you start putting your money into investments and savings, you need to set aside liquid assets to cover any unexpected costs that may pop up. Generally speaking, you’ll want at least three months’ worth of cash in a high interest but easily accessible fund. Hopefully, you’ll never need these, but an emergency fund is the first step towards financial independence.
4. Increase Your Income Through Side Hustles
The ultimate aim may be to work less later, but you’ll do well to put the extra time in now if you want to succeed. Thankfully, the gig economy is more popular than ever, and there’s rarely a shortage of work available. The real bonus here is that you can dictate how much effort you want to put in. What’s also great about side hustles is that, so long as your covering your expenses with your main job, it’s money that hasn’t necessarily been accounted for yet, so it can go straight where you want it to go.
Here are a few examples of the kind of side hustles you can try out to earn a little extra cash:
- Blogging
- Food delivery
- Childcare Services
- Dog Walking
- Dropshipping
- Virtual Assistant
- Data Entry
5. Increase Your Rate of Savings
Income is not necessarily an indicator of wealth. Indeed, some of the highest earners have very little to show in savings and bankable financial assets. That’s because as people earn more, they often allow financial creep – when a person’s outgoings grow to match their income – to set in.
Most financial experts say you should save at least 10-20% of your earnings. But, if financial independence is your goal, you’ll want to be looking closer to the 50% mark. That means creating a very tight budget and sticking to it religiously.
6. Live Lean and Below Your Means
It only makes sense that if you’re to save more, you’ll need to spend less. And, to get the kind of money you need, that means putting your every expense under the microscope and finding any you can cut back on. For instance, you could try cycling to work instead of driving, downgrading your phone and internet contracts for a cheaper deal, or stop eating out as much. Ultimately, only you can decide what’s worth sacrificing in return for financial freedom, but the more you embrace frugality, the better off you will be.
7. Diversify Your Portfolio
If you’re serious about financial independence, you must start making your money work for you. So, once you’ve paid your debts, have a decent rate of savings coming in, and an emergency fund ready, it’s time to start building your portfolio.
The key to good investing is good research. However, the point here isn’t to try and “beat the market.” Instead, early on, you’ll want to be looking at reliable long-term monthly investment options such as a well-established index fund. Then once you have a decent foundation, you can start diversifying into other areas.
Final Thoughts
Achieving financial independence is not an easy task. It requires sacrifice, determination, and a robust long-term mindset. Furthermore, there will almost undoubtedly be bumps in the road along the way and times when it all seems to be too tall an order. But, if you plan well and persevere, you can build yourself a future where you never have to worry about money again. That means you’ll never again have to work a job you hate or stress about taking time for yourself.