As more and more people look for a way to escape the rat race before reaching their retirement age, financial independence continues to grow in popularity. Today, in Supra World, we bring you the best advice to reach your economic goals and achieve the lifestyle you want for you and your family.
What is financial independence?
Even though it may not mean the same for everyone, “financial independence” is generally understood as the status of having enough income to pay one’s living expenses without depending on others. Financially independent people often hold savings and investment accounts, since these are the kind of tools that offer greater freedom to decide on where and how we want to live.
How to achieve financial independence?
Unless you are fortunate enough to win the lottery or receiving a large inheritance, becoming financially independent requires a little planning. Financial goals, according to personal financial advisors, should have five characteristics: specific, measurable, achievable, relevant, and time-bound. (These goals are often referred to by their acronym, SMART).
8 Steps to Achieving Financial Independence:
Focus on what matters.
When you settle on achieving financial safety and independence and economic freedom, focus on your spending rather than on your earnings. Instead of dedicating yourself to work, channel your efforts into managing your income, controlling your emotions, and tracking your expenses. Pay attention to your cash flow.
You can undoubtedly reach early financial independence by identifying and eliminating unnecessary money leaks. Do some quick math and it will surprise you. If you save 30% of your salary by avoiding expenditures such as buying a luxury car, eating out frequently, and overlooking small expenses, among others, you can make it.
Define what financial independence means to you.
As we already mentioned, even though a general guideline can be set out, the concept of financial security means something different to everyone. For example, some may wish for a middle-age retirement and spend the rest of their life traveling. Others may want to take the step and leave their nine-to-five jobs for a secondary business or activity that generates a passive income. Having a clear idea of what financial independence means to you can help you set viable goals to achieve it.
Create measurable goals.
Suppose that your dream is to retire at 45 having 2 million in the bank. This is a specific goal with a clear time horizon and can help you keep track of your progress. Then, you can use that goal to develop a tailor-made plan. For instance, if you start investing when you are 25, you have twenty years to reach your aim. Considering your current income and your $2 million savings target, you will be able to calculate how much you need to save or invest, either monthly or annually, to make it.
Prioritize paying off debt.
To be financially independent, you must be in control of your money. Getting out of debt is essential. You will not get real financial freedom if you retire early but still have credit card debts or student loans. Clearing out your financial obligations is necessary to have a full say in what you do with your savings and investment. So, if you are aiming at becoming financially independent but currently in debt, consider which kind of strategic plan can help you repay it as soon as possible.
Do not misinterpret the concept of wealth.
Phrases such as “I would like to have enough money to stop working” or “I want to be rich so I can go shopping without checking the prices” sound genuine. But problems may arise when they come from limiting or mistaken beliefs about money. The concept of wealth is usually linked to high-income level and large property ownership. Yet the association between this idea and financial freedom is a misconception. Assimilate a new perspective: it is time, not money, the determining factor to increase your financial freedom.
Live below your means.
Take every possible step to cut down expenses. Use that extra money to save or to pay off debts. Start by checking your budget for unnecessary spending. You may go a little further and look for more extreme saving strategies, like moving to a city with lower living costs.
Every step taken to reduce your budget is a step closer to reach your goal of financial independence. And it may take more than the standard 15 percent of your income that most financial experts suggest for regular retirement. You may need to save up to 40 or 50 percent of your income or more to collect the necessary amount of money. Do not forget to keep track of your progress regularly.
Diversify your business.
Generating multiple sources of income allows you to harness your potential to its fullest and increase your resources in a shorter period. For instance, if you are a financial advisor, make use of the business opportunities that each client has by offering them diverse products and services.
Hire a financial advisor.
Financial independence can help you live the life of your dreams, but you need to have an accurate vision and a detailed plan to achieve it. The best option is to request the help of an expert, who will listen and help you find the best financial planning alternatives for you and your family.