Bucky Wucky does have sponsors, and we may work with companies to provide you with the best content, information, and data on business and personal finance. Some links on our site may be affiliate links. While our sponsors may pay us, we only work with companies that align with Bucky Wucky’s values.
How to Become Financially Independent
Have you ever dreamed of living a life where you can spend your money freely, without worrying about the consequences to your finances? A life in which your daily or weekly cash expenditures rarely deplete your available funds, resulting in financial scarcity? If this is what you imagine from time to time, then you are dreaming about financial independence. Financial independence is defined as the ability to live comfortably on what you earn and save, without being dragged down by debt or other expenses. Well, if you’d like to learn about financial independence, and how to achieve it yourself, then keep reading!
Financial Independence In the Eye of the Beholder
Aside from the commonly known meaning laid out earlier, it is important to remember that financial independence means different things to different people. Accordingly, to achieve financial independence in your own life, you must first determine exactly what financial independence means to you. To many people, the ideal financial independence is when they no longer have to work to pay their bills or live from day to day.
People who achieve this level of financial independence may still work; however, instead of trying to get by, they may be pursuing other goals, such as building a company, helping others, or merely enjoying themselves. Self-respect and dignity in the workplace are two advantages such workers enjoy. They are rarely disrespected at work by their employees because they are financially independent and may also be employers. Other people may see financial independence as achieving major lifelong goals, such as getting out of debt or being able to truly retire altogether.
While there are clearly benefits to being financially independent, achieving such a status is not always simple. Furthermore, many people follow advice from a variety of untrustworthy sources, resulting in costly mistakes that cause people to fall short financially. In order to truly achieve your own financial independence, here are some key steps you should consider taking.
RELATED: The Acorns Investing App.
Key Steps to Achieving Financial Independence
The following are the steps and advice that must be followed in order to achieve financial independence.
Set a Goal
Financial independence is heavily reliant on savings, and before having enough to save, you have to set some goals. The amount of money saved to achieve a goal determines the amount of money earned. If you wish to achieve financial independence, the goal must include a means of generating and accumulating money while maintaining a standard of living, without the risk of falling into debt.
Don’t just make these goals up in your head and forget about them. Instead, write them down, and keep them somewhere prominent so you can see them on a daily basis; a bulletin or whiteboard in your office is a great place to do this. If you keep your goals literally in plain sight, it will help you think about how to achieve them more often.
Manage Your Time Wisely
Control over time is another factor to consider when striving for financial independence. After all, if you cannot manage your valuable time effectively, you’ll likely miss opportunities to earn more money or improve your finances. Conversely, if you do have control over your time and are conscientious about what you do with it, One who has control over time, on the other hand, will most likely direct it toward positive activities and events that will lead to either more earning, more judicious use of your existing financial resources, or both.
It’s important to note that managing your time can be influenced by your perception of your work and your life; if you are enjoying what you do and how you live, chances are you will make good use of the time you have available. However, if you’re dissatisfied about work or unhappy in your life, you may find yourself wasting a good deal of your time, or otherwise engage in counterproductive activities. So, when attempting to achieve financial independence, it is important to be honest with yourself when you assess your work-life balance; if you’re unhappy with how you spend your time, chances are you’ll never truly achieve financial independence.
RELATED: Which Investing App is Better?
Recognize That Income Is Not Wealth
It is widely assumed that the key to accumulating a large amount of wealth is to obtain a high-paying job. Although this is true to some extent, if you’re serious about achieving financial independence, income should not be confused with wealth. Wealth can be easily understood if it is viewed as net worth. Your overall net worth increases if you can save more than you spend.
Put another way, you cannot accumulate wealth unless a proper proportion between income and expenditure is established. This paradox is one of the reasons a professional boxer who earns millions of dollars per year can go bankrupt a few years after retirement, while a modest wage earner can retire as a multi-millionaire if he or she invests earnings on a regular basis.
If you want to achieve financial independence for the long term, you must understand the difference between income, which is typically short-term, and wealth, which is likely to last a lifetime. Wealth is commonly defined as the difference between assets and liabilities, which is known as equity. Income, on the other hand, is a recurring financial benefit that one receives. Income is a factor in wealth creation, but it is far from the only factor to consider. And, in order to avoid becoming financially dependent, you should consider all other factors that contribute to wealth creation.
Amass Money and Invest It
When there is an investment to ensure financial independence, it is easier to achieve it. Investments, on the other hand, can only be made with ready funds. Taking advantage of an investment opportunity entails setting aside income in order to accumulate a larger sum, which can then be invested in a lucrative investment opportunity.
Amassing wealth is never easy, and it is always a slow process; this is especially the case when you have a modest income and have to contend with cost-of-living expenses. You can begin by putting a portion of your earnings aside while also reducing your expenses. If you have the ability and means to earn more money, you should not hesitate to do so in order to combine your earnings into a large sum. Rather than waiting for a single large sum of money, you can invest a portion of your income in brokerage and tax-deferred retirement accounts on a regular basis. Over time, this investment will generate returns that, when added to the initial investment, will amount to a sizable sum.
To earn even more money, you can invest the new money you’ve earned. If the upward trend continues in all investment opportunities, you will discover that more profits will be made. If the profitable cycle is followed wisely, it will continue indefinitely.
Find a Spouse or Partner Who Shares Your Financial Goals
You shouldn’t ever marry for money, but it is a good idea to marry someone who thinks about money in the same way you do. If your spouse and you both view finances in similar ways, it will be easy to set and achieve common goals. However, if you are both at odds when it comes to money, chances are achieving financial independence together may be difficult; you may have a lot more arguments as well. So, when you first begin to fall in love with a partner, it is a good idea to talk a little bit about money and see if you both have financial interests in common.
Teach Your Children to Be Financially Independent
If you want to achieve financial independence, you should make sure you are teaching your children good financial habits as well. If you don’t, you could end up in a tangled financial relationship with them well into their adulthood in a way that makes retirement and financial independence more difficult, if not impossible.
To ensure that none of your children or other close relatives are financially dependent on you for too long, teach them how to make money and manage their finances. If the situation calls for it, you can provide financial assistance in the short term in order for them to begin their adult lives. This will ensure that you achieve financial independence much more quickly and give you peace of mind that your kids can make it on their own as well.
Create Smarter Safety Nets
People who have had unexpected expenses can tell you how relieved they were because they set up an emergency fund for themselves. However, despite the fact that most see the need for one of these funds, the fact is that many people remain financially unprepared for emergencies. If you want to be financially independent, then you really need to be prepared for the unexpected.
You should have three to six months’ worth of salary saved as an emergency fund, according to most financial institutions. Typically, this fund is used to finance actual emergencies such as home repairs, unemployment situations, medical situations, and unexpected bills.
Having a fund like this on hand will give you peace of mind that you can take care of problems when they occur, and they can help you avoid incurring large debts during emergencies as well. Insurance is another type of safety net. Although similar to an actual emergency fund, the latter is preferred. When you purchase an insurance policy, you will be required to pay periodic premiums and to formally report an emergency to your insurance company when a situation arises.
Understand Your Financial Situation and Cut Your Expenses
Do not have the mindset that a single financial decision of yours is acceptable and that you should rely on it in the long run. Life circumstances change, and your financial plans and actions must be adaptable enough to accommodate your current financial situation.
To ensure that you only buy items that are truly necessary for you, make a list of your requirements, create a scale of preference based on them, and develop a system for only purchasing items that are truly necessary. Quality is an important consideration when shopping. You will not be disappointed in the long run if you always prioritize quality over quantity.
For example, it is critical to invest in high-quality clothing rather than flashy, low-cost items that wear out rapidly. Similarly, diverting your money to more important things in life, such as personal development, rather than trivial things, such as home décor, is more beneficial in the long run. You would also not have to spend as frequently if you prioritized quality. Learning to prioritize your spending will help you stay on the path to financial independence over the long run.
Purchase Income-Generating Assets
Successful people invest in a variety of income-generating assets to ensure that their income stream remains consistent over time. By replicating such a strategy, you can achieve financial independence by ensuring multiple but consistent sources of income. Investing in an income-generating asset requires you to risk your money now in order to acquire an asset that will generate more income in the future.
One important aspect of income-generating assets is that they are not only available to experienced investors. In fact, nearly anyone with a basic level of knowledge can successfully build wealth by owning assets and eventually achieve financial freedom. You can choose from a variety of assets depending on your financial goals and plans. Real estate assets, stocks, savings accounts, certificates of deposit, private equity investing, peer-to-peer lending, farmland, and annuities are some of the most common types.
Prior to making a decision, ensure you consider the cost of entry, requirements, and tax implications of each. If possible, enlist the help of a trusted financial professional to help you consider any investment you decide to make.
Parting Thoughts: Take the First Step Towards Financial Independence Today
Financial independence may seem daunting, especially if you earn a modest income and are carrying some debt. However, with a little bit of discipline and planning, anyone can get their finances in order and live a more deliberate life. So, consider the ideas discussed here, and take your first step towards financial independence as soon as you can.
Thanks for reading about how to become financially independent.
Learn about Stocks, Bonds, & Real Estate Investing.
Take a peek at the Best Budgeting Tips.