If you’re reading this site I know one of your goals may be to become financially independent. According to Bankrate, financial independence is a term that is used to describe the state of having sufficient personal wealth and to live without having to work actively for your basic necessities. There are several things that you can do to help you become financially independent. In today’s post, I will go over five of them.
Eliminating your debt
Eliminating your debt is one of the 1st things that needs to be done to become financially independent. You should take the time to create a plan and pay off your loans and credit cards as soon as possible.
Lower your expenses
Lowering your expenses is the next item that needs to be done to become financially independent. You should ask yourself a few questions. Do you need a large house? Can you downsize? Does your family need 2 or 3 cars? Do you need cable? Depending on how you answer those questions, you may realize that some of your expenses can be lowered. This should be done as soon as possible.
Invest
Investing is crucial if you want to become financially independent. Become a student of the investment game. There are several types of investments out there. Take the time to learn one that you’re really interested in and become a master at it.
Spend less money than you earn
The 4th item on the list is to spend less money than you earn. For some people, this is easier said than done. This is where paying yourself first comes into play. You can have money automatically deducted from your paycheck each month to go into a specific savings account. Another way to help you spend less is to create a budget and follow it. It may not be the easiest thing to do in the beginning, but staying on your budget will pay off for you in the long run.
Create multiple streams of income
Creating multiple streams of income
is something that should get you on the fast track of becoming financially independent. It is said that the average millionaire has seven streams of income. Depending on what your goals are, you may not need that many streams of income, but you definitely need more than one. Some things that can be considered multiple streams are investments, money making assets, or any side businesses that you have.
Set specific goals
Setting specific goals may be the most important thing that you can do to become financially independent. Your goals should help you decide a lot of things. You should have a timeframe for everything that you want to achieve. Your goals should also be detailed enough so that they keep you motivated.
To summarize, the 5 things you can do to become financially independent are eliminating your debt, lowering your expenses, investing, spending less money than you earn, creating multiple streams of income and setting specific goals.
Is becoming financially independent a goal of yours? What do you think one of the important steps to getting there is?
Dual Income, No Kids launched in the spring of 2006 and is now part of District Media, LLC. With over 10 million visitors and syndication on Google News, District Media delivers high-quality personal finance news and advice. Our 58 blogs inform, empower, educate and entertain the public -- free of charge, with all operating expenses financed by advertising.
{ 3 comments… read them below or add one }
Both timeless wisdom and common sense. Too bad not many people follow this advice. :/
Becoming financially independent is something that I am striving for. It is by far the most difficult path than say staying on autopilot in a 9-5 job an hoping to retire by age 65. I want to live my life and all these steps over the next 20 years will help me achieve that!
I guess since I reached financial independence (defined as net investment portfolio value of 33x total annual living expenses) before age 40, I’m an expert on this topic.
Overall I think your points are exactly right. I see financial independence as not binary (meaning either yes or no), it’s a number that reflects how long you can live without earned income. This ratio is your net investment portfolio divided by your annual expenses, and once it reaches 33x you can count on it being able to cover your expenses for the rest of your life. To raise this ratio you can: increase your savings, decrease your expenses, or ideally do both! Investing is useful to accelerate the growth of your savings, and it’s critical to generate the returns that support you once you stop working. And on multiple streams, don’t forget pensions, annuities, and social security (these reduce your net expenses).
Exactly how best to accomplish these basic steps depends on the individual. Some people have more control over their income than others, while some have more flexibility on the expense side. Some prefer to manage their own investments, while others rely on outside advice. Some are well suited for small business (for example landlording, blogging, or trading antiques on eBay) while others avoid anything that’s not 9 to 5. Different combinations can bring you here.
In my case what got me here is a high savings rate from ultra low expenses (like my personal spending is less than what I pay in income taxes) plus some fairly good luck in the stock market. Co-workers of mine who are similarly situated were mostly not quite as thrifty, but have talent for various kinds of small business. I don’t know anyone who made it via inheritance, lottery, or employee stock options, although I’m sure they exist.
If doing this still interests you, I’d suggest choosing a role model whose personality and earlier circumstances match yours as closely as possible, then ask and learn. If you can’t find one in real life, there’s an online community over at early-retirement.org where members discuss and debate all sorts of financial matters. Not everyone can be Warren Buffett, and thankfully you don’t have to be to reach financial independence.