Who doesn’t want to be financially independent? But only a few people get there! There are many reasons you won’t achieve financial independence, but there’s also much you can do about it!
Retiring at 65, with not enough time and energy left to enjoy the fruit of your labor doesn’t sound appealing. Financial independence gives you time and confidence to enjoy life without worrying about day-to-day expenses and depending on a tedious 9 to 5 job.
Financial independence requires discipline, patience, time, and, most of all, sacrifices. When the crowd is opting towards getting more stuff, you will have to stick to a minimalist lifestyle.
We’ve all known the “10% of your salary goes into the savings account” saying. But are you ready to save and invest about half your income?
In this article, we will discuss how to reach financial independence and adapt to a FIRE lifestyle. So without further ado, let’s begin!
Is Financial Independence Possible?
Yes, financial independence is possible, but it requires discipline and consistency.
Becoming financially independent depends on your income, savings, savings rate, and much more. You also need to consider whether you have any debts (like a student loan) and if you are to inherit something.
In short, you need to review your finances realistically!
The next step is to start saving!
Yes, I’m sure the new car your colleague bought is cool, but the question is, do you need the vehicle? Living in the present and spending money without a thought sounds incredible, but it’s not a rich attitude!
Do not just follow the crowd!
Make sure to ask yourself whether you really need something or just want it. Separate the needs and wants, and be smart about spending your money. You can’t be financially independent without making sacrifices!
Spend your time doing something productive. Maybe start reading a good book, do some yoga, take a walk, or work on growing your current income! Those are the things you’ll be thankful for later.
But only saving money is not enough!
Don’t just park your income in a bank account, but rather invest it. Keeping money in the bank will just let inflation erode the value of the money, and in the end, there’s never enough! Build a diverse investment portfolio so that you can live off the return in the future.
How Do I Get Financial Independence? (5 Proven Traits)
The secret to financial independence is that it never happens out of the blue. You plan to plan and work for it. So, if you have a mentality shift for wanting more in your life, here are five essential traits to start.
Stand Out Like A Purple Cow
I repeat, do not follow the crowd. It will not take you anywhere you want to go!
Most people spend a lot of money because they want to keep up with their family and friends. They think that if someone else has something fancy, then why shouldn’t they have it.
However, you are different! Not everyone else is thinking about financial independence, but you know it will change your life. Ignore everyone else! Instead of following the crowd, set an example so that others may follow you!
Know The Difference Between Being Rich And Wealthy
To be financially independent, one must understand the difference between rich and wealthy. In simple terms,
A wealthy person has sustainable wealth, while a rich person just has money.
A wealthy person understands how the financial world works and manages finances accordingly. They don’t just run out of money because they make money work for them! Don’t aspire to be rich, but relatively wealthy in money, health, and wisdom instead.
Create SMART Goals That Deliver Results
To ensure that your goals are clear and reachable, they need to be SMART! Each one of your goals should be:
Specific: To specify a goal, consider all five Ws (who, what, where, when, and why).
Measurable: For a quantifiable goal, you ask questions like how much and how many.
Attainable: Your goal should be something you can accomplish to give yourself a sense of accomplishment.
Relevant: Goals should be focused and relevant to your end objective.
Time-bound: Always put a deadline on your goal to add a sense of urgency.
Surround Yourself With Like-minded People
Having friends is crucial, but it’s easy to get distracted when everyone else around you has different goals.
To grow, you must surround yourself with like-minded people. They will not only understand you better but also inspire you to do better. You can discuss ideas, learn from their ventures, and essentially be yourself!
Hit The Jackpot Making This One Investment
Never forget that the best investment is within one’s self!
It’s essential to focus on managing finances, but don’t forget to give yourself room to breathe. Go out for a walk, read a good book, and (in general) lead a more healthy lifestyle.
Also, take some time to invest in your career. Find a good course online, and don’t let the learning process stop! You can find free courses or audit courses on platforms like Udemy, Coursera, and Skillshare.
Three Levels Of Financial Independence You Didn’t Know Existed
Achieving financial independence can be broken down into different stages. You can plan each step accordingly and see which works best for you.
There’s one thing common in all financial freedom stages: you don’t HAVE to earn for a living, as investment returns cover your living expenses.
Budget Financial Independence
A lower-middle-class household in the United States earns about $47,216 per year. The exact number varies with factors such as age. Budget financial independence enables you to live a financially independent life as a lower-middle-class family.
If you’re happy with this lifestyle, then you need about $800,000 to $1,600,000 in investable assets with a return of 2.5% — 5% to replicate the yearly income of ~$40,000.
A budget financial independence often requires trade-offs. Some examples would be having a spouse who works, downsizing your living arrangements, or taking a part-time job.
Baseline Financial Independence
A median or middle-class family in the United States has an income of $60,000 yearly. A baseline financial independence is where you can lead a financially independent lifestyle
like a middle-class family.
Considering the average return of 2.5% — 5%, you would need to invest $1,200,000 to $2,400,000 in investable assets. We always recommend saving more rather than less. You never know what tomorrow will bring and how long you will live (if you’re planning to quit working altogether). The ~3% inflation each year will also cut down your purchasing power.
Blockbuster Financial Independence
This is the final level of financial independence. Here you’re living a comfortable life with a family of up to four anywhere in the world. However, the income you must procure usually depends on where you currently live and plan to live.
Using the same 2.5% — 5% return figures, you would need to invest 5,000,000 — 10,000,000 per individual or 6,000,000 — 12,000,000 per couple. This will generate the annual income of $250,000 — $300,000,000. It also helps if you have no debts and a paid house.
Tactics For Achieving Financial Independence Faster Than Most
Financial independence doesn’t just happen overnight. You must plan everything and divide the process into more manageable steps.
Here are the seven crucial steps for achieving financial independence faster to help you get started and point you in the right direction.
Crush All Money-Sucking Liabilities
There’s no such thing as good debts. To be financially independent, make it your goal to get out of debt and stay out of debt! It won’t help to have hundreds of thousands in savings when you’re paying off the interest on loans.
A big hurdle for millennials striving for FIRE is the student loan. More than half the youth who attended college are paying off their student debts for the first few years of their career. With monthly payments of $200 to $250, it becomes difficult to save much.
To make the process simple, categorize various loans according to how much time it’ll take to pay them off. Most people have the following four debts:
- Credit card debt
- Car loans
- Student loan
Now, set a time horizon on how long it will take to pay off all your debts. It usually takes 5 — 6 years to pay off car and credit card debt (depending on the sum and your income). Student loans typically take about ten years and mortgages for 15 years.
It doesn’t solve the debt issue but sets you off in the right direction!
Breakup With Your Credit Cards
Credit cards are the villains in your financial independence journey. With a credit card, you never learn self-control. You don’t get serious about savings because you can rely on the credit card (but Don’t)!
The use of credit cards usually means that you don’t have a budget or don’t stick to it if you have one. Budgeting may sound tedious, but it’s one step in the right direction.
A credit card owner runs the risk of missing bills, running up a debt, and paying interest. If your card balance goes unpaid for long, it will diminish your credit score and harm your insurance bills.
Review Your Budget Religiously
Making a budget and sticking is essential for financial independence, but it’s also important to review your account daily. Some people prefer to review the budget at the end or beginning of each month, which is not exactly a bad habit. However, we recommend tracking expenses daily so that you can adjust the budget accordingly in time.
Reviewing your budget daily allows you to analyze your progress. You can check whether the budget is realistic or if it’s time to make some changes.
Be Laser-Focused With Growing Your Income
It’s possible to live on a fixed salary, but you need to get creative when you’re striving for financial independence. It would help if you started a side hustle to make some extra cash.
Maybe you have a six-figure salary and think that you need to grow your income. I agree, but working on a side hustle will diversify your income sources. This way, you no longer have to depend on your bosses and can achieve financial independence faster.
Become A Saving Machine
If there’s one thing you can’t ignore to become financially independent, it’s saving!
Almost every other step depends on saving. You can’t get out of debt if you don’t save, you can’t invest if you save, you can’t stick to a budget, and more.
Instead of buying expensive stuff for yourself or your family, spend time with them. Pass good values and habits to your kids, and help them understand the importance of money to have a financially independent mindset!
An excellent way to save money is to use a personal budgeting app like Y.N.A.B. It’s available on Windows, Mac, iOS, and Android. The app offers 34 days of free trial and a monthly plan for $11.99/month. It’s an additional expense, but you’ll see the importance of the app once you start using it.
Invest More Than 15% To A Retirement Account
Like Dave Ramsy, most financial experts recommend investing at least 15% of your income into a retirement account. But that’s for a typical retirement plan!
If you plan to retire early then, 15% is just the starting point! You need to invest almost half of your monthly income. The more you save, the quicker you can retire!
Review Your Financial Goals Annually
Nothing goes well until we review and track progress. That way, you can make sure that your goals are on track and that you’re on track too! It’s effortless to get distracted from your goals.
An annual review is like an affirmation to remember your goals and renew your commitment!
Reviewing your insurance coverage is another thing that you must review annually. Maintaining minimal insurance coverage will keep your insurance expenses low. It’s not something that we consider until very late, but insurance protects your assets. As your wealth grows, the insurance coverage will rise along with it.
Commit To The Journey Like Your Life Depends On It (Or Don’t)
We often hear people say that you can never be good at something that you don’t love! Financial independence works the same way. It’s like having another job, to keep yourself busy in building your future.
If you don’t love the process, then it can make the journey even harder. On the other hand, if you love the process, it will be like a vacation.
It takes time to reach financial independence, but the key is to keep your eyes on the prize and not let the crowd distract you!
Know Your Worth Using A Financial Independence Calculator
To calculate how long it will take you to become financially independent. You can use a financial independence calculator such as Networthy for that. It uses various factors such as your age, income, savings, expenses, saving rates, and portfolio value to calculate when you can retire.
Choose A Happier Life: Why Financial Independence is Important
It’s a rich thought. To be financially independent enough to enjoy life while you still have teeth!
However, if you think that being financially independent is about sitting on a beach sipping martinis, then that’s not it! The idea is to save enough that you can quit your full-time job if you wish! Stick to a part-time job, a side hustle, or stop working altogether!
That’s the financial freedom we’re talking about!
It’s not a number on your bank account but a healthier mindset leading to a more productive lifestyle!
Be Independent Of A Job You Hate
A lot of us hate our day-to-day jobs. Sometimes, because of a bad boss or there’s too much repetition, or simply because we’re not happy. We all have to pay bills, and it’s just not realistic to leave the job even when we desperately want to!
Financial independence means you can quit the job and pursue the career of your dreams! Who doesn’t want that?
Start Calling The Shots
Isn’t it frustrating when you want to take a break and can’t because it’s work time?
I’m not saying that giving in to your impulses is a good idea, but we all need time to ourselves. If you rely entirely on a fixed salary, then it’s challenging to take control of your time.
On the other hand, financial independence means you don’t depend on the job! It gives you more control of your time and leads to a more productive lifestyle.
Be Present At Once In A Life Time Events
Don’t you hate it when you miss Mom’s birthday, or can’t spend Christmas at home?
Family is an essential thing in life, and we must never lose sight of that!
Once again, financial independence comes to the rescue. You can choose where you want to work, work hours, and not work yourself to the bone.
Explore The World’s Riches
Traveling is one of the best things about being alive. I think we all have a bit of wanderlust in our souls that long to be freed!
Financial independence gives you a chance to travel more and explore new skies—no need to stick to nine to five jobs and dream about the vacation. You can become a digital nomad and travel the world while working on the go. It’s about having the liberty to do as you please!
Retirement: How to Achieve Financial Independence Retire Early (F.I.R.E.)?
What Is The FIRE Movement?
FIRE is an acronym that stands for Financial Independence, Retire Early. It’s a lifestyle focused on saving and investing about half your income to retire earlier.
The idea of FIRE was born out of a 1992 best-seller, Your Money, Your Life. The lifestyle gained popularity in 2010, particularly among millennials!
The goal of FIRE is to:
- Increase your income.
- Keep your expenses to the minimum.
The higher your income is, and the lower your expenses are, the faster you can reach financial independence.
Types Of F.I.R.E.
There are now three variations of FIRE that we will discuss here. You can personalize F.I.R.E. for yourself, and you won’t have to save money miserably but rather enjoy the process.
LeanFIRE is the most active type of FIRE. It favors a lean lifestyle to save enough to retire early. Following this type, you would live with the bare essentials and take a minimalist lifestyle. An individual following the LeanFIRE lifestyle is usually able to live more modestly after retirement.
An example of the leanFIRE individual would be someone willing to live in an R.V. That way; they can save enough to have a house when they retire (and a financially independent future).
FatFIRIE is the most fun and most effortless FIRE lifestyle. It’s an individual who can retire early without having to alter his current way of living.
This lifestyle favors aggressive savings and investing strategies to lead a comfortable life now and after.
BaristaFIRE combines the best and worst of both worlds, fatFIRE and leanFIRE. The baristaFIRE retiree maintains more than a minimalist lifestyle and finds another way to earn money on the side.
Mostly, a BaristaFIRE individual does one (or more) of the following:
- Rigorous savings and investing strategies are in place.
- A side or part-time gig to get some extra cash
- A spouse who (still) earns and provides health benefits
Key Habits To Skyrocket Your Odds At Reaching Financial Independence
If you’re still reading, then you’re not following the crowd. You’re striving for something that you believe in and willing to work for it!
As John Maxwell puts it:
You’ll never change your life until you change something you do daily. The secret of our success is within your daily routine.
Here are a few simple and practical habits that can help you achieve financial independence.
- Read more and open your mind to new ideas and places.
- Exercise daily. A sound mind is in a sound body.
- Meditate! It calms your mind, improves focus, and helps with your mental health.
- Review finances daily to keep track of how well you’re doing!
- Wake up at 5 am to work on a side hustle.
- Diversify your income. It’s never safe to put all apples in one basket.
Learn Money Secrets With These Financial Independence Book(s)
Books are our best friends, so why not review some great books on financial independence that can help along the way.
Think And Grow Rich
The book by Napoleon Hill, an American author, explores the power of mindset in advancing your career. It’s an excellent self-help cum finance classic for investors and entrepreneurs.
Millionaire Next Door
This book by Thomas J. Stanley focuses on a more practical side of finance. It shows you simple saving and spending habits that can lead to financial independence.
Rich Dad Poor Dad
Rober Kiyosaki’s most popular book revolves around the story of the author himself. He uses his own life story to show that rich are not born rich. You just need the right information and mindset to become financially independent.
Financial Independence Blogs That’ll Fuel You With Inspiration
There’s always something new going on in the world, and you need to stay up-to-date. To do that, here are the three financial independence blogs to follow and learn.
To stay up-to-date, Addicted2success is an excellent platform. It’s a digital media/new company with a mission to share knowledge and empower the people.
Sam Dogen started financial Samurai in 2009 to help people handle their finances during the recession. He shares his own experience and financial wisdom through this blog.
A rather odd choice of name, but Mr. Money Mustache is an excellent place to get information about FIRE. It offers tons of advice and tips on saving, budgeting, and investing.
Conquer Your Financial Independence Journey
There’s no specific age to start working towards financial independence. You can start at 20, or you can start at 40, but the sooner you begin, the sooner you can retire!
Take a step forward, and work towards financial independence. You’ll never know whether you can make it if you don’t try! You have the knowledge, resources, and inspiration. All you need to do now is to take action! Make a financial independence checklist, and get to work!
It’s a challenge, but you can do it!
In the end, financial independence is more than just money. It’s about growth and having the confidence in yourself to overcome fears and live freely, ever after!
Will you have what it takes to reach financial independence?
Only you have the answer.