Most people want to achieve financial independence but don’t know how.
To help you achieve financial independence, below are eight actionable tips and tricks that anyone can use to attain financial freedom. Whether you’re starting or are already on your way, these tips will help you get closer to your goal.
What is Financial Independence?
Table of Contents
Ultimately, financial independence is going to look different for everyone. For some, it can mean having enough money to live well without having to work. For others, it can mean making the right financial decisions over time so that you can have a comfortable retirement. Financial independence can mean different things at different stages in life for different people.
For instance, 57% of respondents in a recent TD Ameritrade survey of young people aged 15 to 29 believed they were financially independent because they could meet their obligations without assistance from their families and relatives.
This means that financial independence can be achieved at different financial milestones, such as having enough money in savings and investments to cover monthly expenses. It also means having financial assets that bring in enough passive income to support one’s lifestyle without needing a traditional job.
Financial Independence vs Financial Freedom
For many, living life without having to worry about finances is the dream. And while “financial independence” and “financial freedom” do tend to get used interchangeably, they actually have defining characteristics that make them fundamentally different.
Financial freedom is defined as having enough funds on hand, in stocks, and in savings to support the lifestyle you desire for yourself and your family. In its essence, financial freedom is the point in one’s life where you aren’t being weighed down by debt or living paycheck to paycheck. Living a financially free life means that you have the resources and means to make decisions that are unencumbered by the stresses of finances. For example, it is easier for those who are financially free to take a trip at the drop of a hat because they aren’t worried about the funds.
Financial independence, on the other hand, refers to having an income that either meets or exceeds your budget so that you do not have to rely on anyone or anything but yourself financially.
Think of financial independence as a stepping stone to financial freedom.
Can Anyone Be Financially Independent?
Anyone can become financially independent if they have a plan, set goals, and work towards them. It will take time, planning, and patience, but with the right steps in place, it can happen for anyone.
Financial independence can be developed by starting to save and invest early. Having several multiple sources of income is also a great way to supplement. This means that in addition to a having a steady job, you can have a side hustle or develop other forms of passive income.
Managing expenses is also essential for financial independence. This includes creating and maintaining the budget, cutting unnecessary costs, and finding ways to save more money to help with investing, such as in mutual funds and building up funds.
Hurdles for Financial Independence
Everyone wants to be successful to have a comfortable retirement, yet a vast majority of people do not know how to take the steps to make that happen. Below are some of the most common hurdles to financial independence and how to overcome them:
- Unwillingness to Adjust Your Spending Habits: It may be difficult, but assessing your spending habits and cutting unnecessary expenses is essential. This means creating a budget, sticking to it, and learning to say no to impulse purchases. This is about having the discipline to stick to your financial goals and prioritize them over instant gratification.It is important to be able to look at your habits and assess them for what they are and be willing to make necessary changes to hit your goals.
- Setting Unrealistic Goals: Goals need to be actionable and realistic. Actionable means that you are taking the time to set short-term goals that will ultimately lead you to the broader long-term goal.Setting standards that are too high with insufficient time to meet them is another part of having unrealistic ambitions. Set realistic, achievable goals and break them down into smaller steps to achieve them.
- Not Having a Plan: Trying to obtain financial independence without a plan is like driving a car without a steering wheel. You’re gonna go nowhere fast. You have to set guidelines and boundaries so that your goals can become a reality.Having a plan can look like creating a budget and listing all of your financial living expenses, making a decision about where you can cut back and where you can save, and then, this is the important part, sticking to that plan.
8 Tips for Achieving Financial Independence
So now that you understand the basics of financial independence, you may be wondering what other steps you can be taking to achieve your goals and blow your plan out of the water. Below are tips to help you achieve financial independence:
- Set Obtainable Goals: Setting realistic and achievable goals is key to reaching financial independence. Break down your larger goal into smaller, manageable steps with deadlines to keep yourself on track. This way, you can focus on getting each step instead of being overwhelmed by the bigger picture.
- Have a Saving Mind Set: Setting aside a part of your income is crucial to achieving financial independence. This means making sacrifices and saying no to certain expenses in the short term for long-term gain. Saving as a priority and making it a habit will reap benefits in the future.
- Invest: Investing in assets such as stocks, bonds, and real estate can help you build wealth and reach financial independence. Educate yourself on the options available to determine the best investment strategy for your goals. Investing in mutual funds, real estate or rental properties, and index funds can provide a steady income stream in the long run.
- Automate: Set up automatic transfers to ensure that you consistently save without thinking about it. And if you have extra cash in your budget, consider increasing the percentage of automated transfers. Automation may also be used for investing – set up automatic monthly contributions to your investment account.
- Get Insured: Ensure you have insurance coverage for your health, property, and other assets. This will protect you from unexpected expenses and financial strain in emergencies or accidents. Getting insured, too, can provide peace of mind and security for your future, not only for you but also for your loved ones.
- Take advantage of workplace benefits: Many employers offer benefits such as 401(k) plans and health insurance. Take advantage of these opportunities, where possible, to save for retirement and protect your health and well-being. This can save you money and help you achieve financial independence. You can also ask about other benefits and perks, such as flexible spending accounts or tuition reimbursement.
- Have emergency savings: It is crucial to have cash available for unexpected expenses or emergencies. Experts recommend saving enough money to cover at least three to six months of living expenses. This fund can provide financial stability and security in case of job loss or unexpected expenses. Moreover, having an emergency savings fund can prevent the need to use credit cards or take out loans, avoiding additional debt.
- Plan for retirement: Saving for retirement may not be on your mind, especially when you are young. However, starting early can significantly benefit in accumulating wealth and reaching financial independence. Consider opening a retirement account, such as a 401(k) or IRA, and contribute consistently to it. This will ensure that you have a steady income for your retirement years. In addition, take advantage of employer matching contributions to maximize your savings potential.Following these tips can help you work towards achieving financial independence and securing a stable future for yourself and your loved ones. Consistency and discipline are key – start taking action now to reach your goals.
Final Thoughts
Achieving financial independence starts with understanding that reaching that goal will look different for everyone. Your situation is unique to you, which means you will need to take a step back and thoroughly assess your own situation before taking the steps to remedy your financial status. Once you have a better idea of where you stand, you can start setting goals and working towards achieving financial independence! Having a plan in place is going to be your best ally. Make a plan, be adaptable, and remember: it takes time! You’ve got this.