Being financially independent is the ability to manage your money on your own, without worrying about borrowing or needing money from others. If you are in an office environment and you get a new terrible boss, when you are financially independent, you can simply quit. If you want to go back to school and change careers, financial independence gives you the option to simply choose the school you want and enroll. You could start a new business, change houses, live in a new state, etc. Whatever you want to do is within reach when you know how to safely rely on yourself monetarily.
This all sounds very rosy, but it doesn’t happen in one day. Financial independence takes time and lots of sacrifices and effort. Achieving the right amount of freedom that you crave means that you must be disciplined and stick to a plan that is sometimes very harsh.
When your friends are taking vacations, you may end up staying back and alone as you try to achieve this freedom. When they are buying new cars, you might be stuck with your old car for a few extra years, just so you can save on money. The frugality may get you down in the moment, but in the future, when you are enjoying your life, buying whatever you want, and going on exotic vacations, others will wish they had taken the same sacrifices you were. So, how do you get started? We are glad you asked. Below, we give you 5 incredible tips on how to become financially independent.
Learn to control your expenses.
This is one of the most important steps towards achieving financial independence – learning to control your expenses. Look at it this way: the less you spend, the more you save. This should actually become your motto because many people find themselves in debt due to spending more than they earn.
Critically evaluate your monthly expenses, and get rid of those that do not add any value to your life, or expenses that are not important. Next, you need to come up with a budget. A good rule of thumb usually is 50/30/20. This actually works for most people. It means that you should spend 50% of your earnings on essentials, 30% goes to paying off your debts, and 20% goes in savings.
Try to get out of debt.
Debt will cripple your financial independence because it costs you money each month. You cannot achieve any sort of independence if your debt is holding you back. Your credit card debt is one of the most serious types of debt because it has a high-interest rate. You must seriously attack this with the aim of eliminating it completely.
Come up with a plan to offset the rest of your debts, but listing them down from the smallest debt balance to the highest. This is known as the “snowball” method that helps you start paying off your debts little by little.
Getting out of debt is one of the most important steps towards financial independence.
Make some serious sacrifices in your budget.
This is what we call “trimming the fat”. Once you understand your expenses and your income, you must go a step further and eliminate what you consider to be luxury goods. Trimming your budget will cause your savings to start to pile up.
Increase your income.
We are currently living in what is known as the “gig economy”, where more and more people are looking for work outside their normal 9-5 jobs. This will actually give you an opportunity to make some much-needed money on the side that you can allocate towards your financial independence.
Look for job opportunities around you, such as writing online articles, posting your home on Airbnb if you have some extra rooms, and even working with Uber in your free time. Some people have been known to make thousands of dollars from their side gigs, which goes towards their retirement allowances.
If you are still single, or in college, this is the perfect opportunity to save some money before you start a family.
Increase your savings.
Once you understand how important financial independence really is, then you will appreciate how savings play a role in this. If you have been saving only 10% of your income, try and increase this figure to around 20% or even 30%. The more you save, the more independent you shall become.
After setting up a savings account, you should then consider investing this money in some passive income making ideas such as stocks, certificates of deposits, or money market accounts. This is how you become financially independent, by building a portfolio.
You could mix this up with some long-term as well as short-term investments, depending on your needs.
Financial independence is a dream for all of us. Being able to do what you want, whenever you want to do it, is something we all aspire towards, and we hope that these five tips on how to become financially independent will go a long way into helping you achieve this.