Financial independence seems like a dream – but how do you get there? We’ll tell you how.
First thing first, financial independence isn’t the same thing as retirement.
Retirement is the end of your work life (although the definition is changing now).
Financial independence is merely the end of mandatory work and enjoying a semi-early retirement. It means being able to do whatever you want in life without having to worry about money.
But when you earn a fixed salary and expenses keep rising every month, how do you achieve financial independence? Of course, you can’t get there overnight. Achieving financial freedom takes the right planning and discipline to stick to the plan even if things are sometimes harsh. Here are 4 steps towards financial independence that you can follow to reach the freedom you’ve always wanted.
Set specific goals
Goals define what financial independence will look like for each of us. Goals, particularly specific goals written out with timetables, can motivate us to initiate and stick with the other keys to financial independence.
Spend less than you earn
Most of us have certainly heard this rule, but it remains one of the toughest financial behaviors to execute. One rule of thumb is to put between 10-15 percent of your gross income in savings or investments every week. Working couples might try to bank a substantial part of one salary if possible. In any case, adhering to a minimalistic standard of living will help anyone put more money into savings and investments sooner.
Build smarter safety nets
Emergency funds and insurance are part of the financial planning picture, but they’re rarely discussed in combination. The traditional definition of an emergency fund is a separate account for cash that can be used instead of credit in a sudden emergency. But it might be wise to evaluate current deductibles on home, car and health insurance to see if those amounts should be built into one’s emergency fund – many people keep deductibles fairly high to keep premiums low. Would you have cash on hand to cover deductibles if you had a sudden claim? If not, put that money in reserve. The more effective you are at dealing with financial emergencies, the faster your savings and investments can grow.
Buy assets that generate income
No investment is foolproof – whether you invest in stocks, real estate, collectibles or cash investments, all have up and down markets. It is important to fully understand everything you invest in and focus on assets that will make money over the long haul. Reading widely on the subject of any class of investment you’re interested in will help you buy low so you can sell higher at a later date. Don’t forget to study the tax ramifications of any investment transaction you make.
One last point. Being able to pay for a lifestyle you love without worrying about money is an enormous relief and reward. If you don’t feel you’re heading in that direction, consider putting some of these steps in action today.
Not everyone inherits a fortune. Financial independence takes work and discipline, but small steps can yield big rewards over time.