Many millennials and other generations as well have a goal of pursuing financial independence.
This concept of financial independence simply means you’ve saved enough to support your current living and spending habits for the remainder of your life.
However, achieving financial independence is also not an easy road, but it is possible. And you don’t have to be extremely wealthy to hit the goals either. Instead, it takes some careful planning on your end to ensure a financially successful future.
Some of you reading this may reach financial independence faster or slower than others, but the important part is don’t compare yourself to others. Stay focused and apply these seven tips below in order to get closer to being financially independent.
Calculate What You Need to Be Financially Free
Before you can truly get started on your financial independence pursuit, you should know what your actual money goal is.
Many times people start saving or investing without really knowing what number they need to live comfortably without working.
Know what your living expenses are, what they might be based on inflation, figured out your savings rates, etc. All this can help you determine things like how much you need before considering retirement, what assets to invest in, how much you might need to make, etc.
Without knowing these numbers, you’re blindly pursuing something that could cause you to not enough or invest in the wrong assets.
A version of this post originally appeared here.
Become Financially Literate
If you want to be successful in personal finances and be on your way to financial independence, you need to become financially literate.
Most of our educational backgrounds do not include much about personal finances, investing, budgeting, etc. You may learn a few things from your family or friends, but many times their knowledge might be limited too.
This means your financial education is on You.
And it’s much easier than you think to teach yourself financial basics thanks to the internet, books, and money podcasts that can break it down well. Spend an hour or two each week to reading or listening to something related to finances and investing.
Prioritize Your Spending
Consumer debt is a big challenge in America and many people carry credit debt or are just overspending in general.
When you are on the path to financial independence, everything you spend or save matters. This doesn’t mean you need to cut everything out of your life that brings you joy but be smarter about what you purchase.
The goal is to understand the difference between your wants and needs, plus just find a balance with what you spend.
This might mean creating a budget and keep track of your spending to keep it in check. And saving money also gets easier the longer and more you practice this.
Maximize Your Savings Rate
Once you get your spending in check, it’s time to really look at your savings rate and increasing how much you are saving and investing.
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Calculate what you can afford to save and pay yourself first when you get paid. This ensures you are putting money away for you first, before having access to paying bills and spending any excess money.
You also need to find ways to maximize your savings rate, especially if you are aiming for financial independence at a younger age.
A savings rate of 10%-20% is pretty good, but to fast track your way you will need to be socking away much more. It really depends on your situations, but many people are aiming for 40% all the way up to 70%+. It should be obvious, the more you save the faster you’ll get to financial freedom.
Put Your Money to Work
Saving money is one thing, but to truly achieve financial independence, you have to be willing to put that money to work for you.
Your goal should be to have your money make money while you are asleep. For example, investing the stock market allowing for compound interest and dividends to be paid.
This also doesn’t have to be just the stock market. You can invest in other assets like real estate rental properties, flipping homes, or investing in real estate crowdfunding for diversification.
Once you really start saving a good amount of money, a savings account for emergencies is only one piece to your finances. You’ll need to put that money to work to generate more cash for you if you want to achieve financial independence.
Generate A Higher Income
No matter what your financial goals are or where you are in your finances, you’ll need to generate higher income. You can only cut back on expenses so much, but at some point, you need to bring in more money.
There are a few ways to help you do this, all of which takes consistency and patience to achieve,
- Know and improve your career worth. Research your career, industry, what average salaries are, what the next level takes, etc. Then learn on your own, ask to shadow others at work, take on more responsibilities, ask for a raise, apply to other jobs if you aren’t getting a raise, etc. Do everything you can to improve your career worth
- Start a side hustle. Something outside of your job that generates extra income that you can use to save or invest. It can be anything from starting a business, flipping items on eBay, detailing cars, selling art, whatever you can think of, there is a way to make money.
Learn What Money Problems You Can Control
Unfortunately, we all have run into some potentially tough times that end up costing a lot of money. Maybe it’s an unexpected household emergency, health issues, etc. Those tend to be out of your control and best you can do is try to be financially prepared.
However, sometimes our money problems are caused by things we can control.
For example, getting a raise or a new job that pays a bit more and then you start upgrading your lifestyle. You can easily go overboard with lifestyle inflation where all that new salary just goes to stuff, instead of saving and investing.
Another example is being too worried about what others have and trying to keep up appearances. This is sometimes referred to as keeping up with The Joneses. Social media can have an influence on this too because you see what others have that you also should have.
Focus on you, what you have and not worth others are doing. Your pockets will thank you later.
While the above tips are no guarantee you’ll reach financial independence, it will set the right foundation for you to achieve this goal.
Remember, for most people, this does not happen overnight and takes time and consistency of work.
However, if you stick to it and put a plan in place, your odds of reaching financial independence (and early) are greatly improved.
Are you working towards financial independence? What tips do you have for others?