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Reaching financial independence is a dream for most. Only a few people ever get there!
While this is a tough pill to swallow, there are many things you can do to increase your odds of reaching financial freedom.
Like most lifestyle changes, it will require discipline, patience, time, and—most of all—sacrifice.
Although I haven’t reached financial independence, I’ve learned a lot along the way. Below are a few key things you should try if you’re serious about reaching financial freedom.
Is Financial Independence Possible?
It’s possible, but as previously mentioned, it requires discipline and consistency. Even then, it still depends on your income, savings, savings rate, and much more.
You also need to consider whether you have any debts (like a student loan) or if you are to inherit anything.
You need to review your finances realistically and plan accordingly!
The next step is to save!
Yes, I’m sure the new car your colleague bought is cool, but the question is, do you actually need a new 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!
Ask yourself if you actually need something or if you merely want it.
Separate your needs and wants. Be smart about how you spend your money. You can’t be financially independent without making sacrifices!
Instead, spend your time doing something productive.
Consider reading an excellent book, doing some yoga, taking a walk, or working on growing your current income! Your future self will thank you for spending your time wisely.
As you adopt better money habits, your path to financial independence becomes easier. Eventually, you’ll inevitably get there.
How Do I Get Financial Independence? (5 Proven Traits)
The secret to financial independence is that it never happens out of the blue.
You have to plan and work for it.
If you find yourself wanting more for your life, consider shifting your mentality. Here are five essential traits to start.
Stand Out Like a Purple Cow
Do not follow the crowd. It won’t take you where you want to go!
Most people spend a lot of money because they want to keep up with their families and friends. If everyone else has something fancy, then why shouldn’t they have it?
However, you’re different! No one else is thinking about financial independence, but you know it has the power to change your life.
Ignore everyone else! Instead of following the crowd, set an example so that others may follow you instead!
Know the Difference Between Being Rich and Wealthy
To become financially independent, you have to understand the difference between the wealthy and the rich. It’s simple:
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 run out of money; they make money work for them!
Don’t aspire to be rich. Aspire to be wealthy in not just your finances but your personal health and wisdom as well.
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, ask questions like “how much” and “how many.”
Attainable: Goals should be accomplishable so that they are satisfying to complete.
Relevant: Goals should be focused and relevant to the end objective.
Time-bound: Give goals deadlines to impart a sense of urgency about completing them.
Surround Yourself With Like-Minded People
Having friends is crucial, but it’s easy to get distracted when everyone else around you has different priorities than you do. To grow, you must surround yourself with like-minded people.
Not only will they understand you better, but they may inspire you to do better as well. You can discuss ideas with them, learn from their ventures, and be yourself around them!
Hit the Jackpot by Making This One Investment
Always remember that the best investment is bettering oneself!
While it’s essential to focus on managing finances, don’t forget to give yourself room to breathe as well. Go for a walk, read books, and lead a healthier lifestyle.
Also, consider taking time to invest in your career. Start by finding a good course online, and don’t let the learning process stop once it’s done! You can find free courses to take or audit 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 various 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 a living because investment returns cover your living expenses.
Budget Financial Independence
The average lower-middle-class household in the United States earns about $47,216 per year.
Budge financial independence can enable 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 around $40,000.
A budget financial independence often requires trade-offs. Some examples would have a spouse who works, downsizing your living arrangements, or taking a part-time job.
Baseline Financial Independence
A typical middle-class family in the United States has a yearly income of around $60,000. 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 can’t predict the future or 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 ultimate level of financial independence. At this level, you’re living a comfortable life with a family of up to four anywhere in the world.
However, the income you need to 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 to $10,000,000 per individual or $6,000,000 to $12,000,000 per couple.
This will generate an annual income of $250,000 to $300,000. It also helps if you have no debts and a paid-off house.
Tactics for Achieving Financial Independence Faster Than Most
Financial independence doesn’t just happen overnight. You have to plan and divide the process into more manageable steps carefully.
To help point you in the right direction, here are the seven crucial steps for achieving financial independence faster to help you get started.
Crush All Money-Sucking Liabilities
There’s no such thing as good debt.
To be financially independent, make it your goal to become debt-free and stay that way.
Hundreds of thousands in savings won’t make much of a personal difference for you if you’re still paying off the interest on loans.
For example, a big hurdle for millennials striving for FIRE is student loans.
Over half of the people who attended college are paying off their student debts for the first few years of their careers. With those monthly payments of $200 to $250, it becomes difficult to save.
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
- Mortgage
Now, set a time horizon for 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 income), while student loans typically take about ten years. Mortgages average the longest at around fifteen years.
It doesn’t solve the debt issue but sets you off in the right direction!
Breakup With Your Credit Cards
Credit cards are roadblocks on the road to financial independence. With credit cards around, you will never learn self-control because you end up relying on them to make most of your purchases.
Using credit cards often means that you don’t have a budget or that you don’t stick to it if you have one.
Moreover, a credit card owner risks missing bills, running up debt, and paying the interest on that debt. If your card balance goes unpaid for a long time, it will diminish your credit score and harm your insurance bills.
Budgeting isn’t sexy, but it’s one step in the right direction.
Review Your Budget Religiously
Making a budget and sticking to it is essential for financial independence, but it’s important to review your accounts daily.
Many prefer to review the budget at the end or beginning of each month, which is a good habit. However, we recommend tracking expenses daily.
Reviewing your budget at the end of each day allows you to analyze your progress and adjust the budget over time as needed. That way, you can decide whether the budget you set to start is realistic or make necessary 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.
Consider starting a side hustle to make some extra cash.
Maybe you already have a six-figure salary and don’t think you need to grow your income. I agree, but working on a side hustle helps 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 on your journey to becoming financially independent, it’s saving!
You can’t get out of debt if you don’t save, you can’t invest if you don’t save, and you can’t stick to a budget if you don’t save.
Instead of buying expensive stuff for yourself or your family, spend time with them instead. Passing good values and habits to your kids helps 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 YNAB.
The app offers a 34-day free trial and a monthly plan for $11.99/month. Yes, it’s an additional expense, but you’ll see the importance of the app once you use it. It’s a helpful tool to have in your arsenal.
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, 15% is just a starting point! The more you save, the quicker you can retire!
I get it. Most people aren’t able to save this much initially because of all the debt and necessary monthly expenses they have to pay off.
You likely need to invest almost half of your monthly income in order to retire early. The solution is to double down on a side hustle so you can save more.
Review Your Financial Goals Annually
We don’t know everything’s going well until we review and track progress.
By doing this, you can make sure that your goals are on track and that you’re on track too!
It’s easy to get distracted from your goals over time. An annual review is like an affirmation to remember and renew your commitment to them!
Reviewing your insurance coverage is another thing that you must review annually.
As your wealth grows, the insurance coverage will rise along with it. It’s not something that we consider until very late, but insurance protects your assets. Maintaining minimal insurance coverage will keep your insurance expenses low.
Commit to the Journey Like Your Life Depends on It (Or Don’t)
People say you can’t 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. 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
If you don’t know how to calculate how long it’ll take you to become financially independent, you can use a calculator such as Networthy.
It uses various factors such as your age, income, savings, expenses, saving rates, and portfolio value to calculate when you can retire.
Why Financial Independence is Important
It’s a decadent thought: being financially independent enough to enjoy life while you still have teeth!
If you believe that being financially independent is about sitting on a beach sipping cocktails, you’re partially wrong.
Sure, you can enjoy a leisurely life, but the truth is that most people who are financially independent continue to work in jobs they love. Some continue to work their corporate jobs, while others work for themselves!
The idea is to save enough that you can quit your full-time job if you wish and stick to a part-time job, a side hustle.
You even have the option to 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. Maybe there’s too much repetition, or maybe we’re not happy to begin with.
We all have bills to pay, so it’s not realistic to leave our job, even if we desperately want to!
Achieving financial independence means you can quit your job and pursue the career of your dreams!
Start Calling the Shots
Isn’t it frustrating when you want to take a break and can’t because it’s work time?
While it’s not smart to give in to your impulses, we all still need time to ourselves occasionally. If you rely entirely on a fixed salary, then it can be challenging to take control of your time.
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 Lifetime Events
Don’t you hate it when you miss Mom’s birthday or can’t spend Christmas at home?
Family is essential. We must always keep sight of it!
Once again, financial independence comes to the rescue. You can choose where you want to work, what hours to work, and avoid working yourself to the bone.
Explore the World’s Riches
Traveling is one of the best gifts a person can give themselves. We all have a bit of wanderlust in our souls that longs to be satisfied!
Financial independence gives you a chance to travel more and explore new places—no need to stick to desk jobs and daydreaming. You can even become a digital nomad and travel the world while working on the go.
It’s about having the liberty to do as you please!
How to Achieve Financial Independence, Retire Early
What Is the FIRE Movement?
“Financial Independence, Retire Early.” It’s a simple but potent acronym for a lifestyle focused on saving and investing about half your income to retire earlier.
The idea behind 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 a 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 it for yourself so that you don’t have to be miserable while saving money.
LeanFIRE
LeanFIRE is the most active type of FIRE. It favors a lean lifestyle so that you can save enough to retire early. To follow this variation, you’d live with the bare essentials and adopt a minimalist lifestyle.
For example, a leanFIRE individual could be someone willing to live in an R.V. for much of their youth. That way, they can save enough to buy a house when they retire.
In this way, an individual following the LeanFIRE lifestyle lives less modestly after retirement.
FatFIRE
FatFIRE is the most fun and effortless FIRE lifestyle. Individuals who adopt it can retire early without having to alter their current ways of living.
This lifestyle favors aggressive savings and investing strategies to lead a comfortable life both now and in the future.
BaristaFIRE
BaristaFIRE combines the best and worst of both worlds.
Usually, 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.
Thus, a typical baristaFIRE retiree maintains a less minimalist lifestyle and finds another way to earn money on the side.
Key Habits to Skyrocket Your Odds at Reaching Financial Independence
If you’re still reading, then you’re no longer following the crowd. You’re striving for something that you believe in, and you’re 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. With a sound body comes a sound mind.
- 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 Books
Books are our best friends, so consider reviewing some influential 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 resource cum finance classic for investors and entrepreneurs.
Millionaire Next Door
This book by Thomas J. Stanley focuses on the 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 the rich are not born rich. You simply need the correct information and the right 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 from.
Addicted2success
To stay up-to-date, Addicted2success is an excellent platform. It’s a new digital media company on a mission to share knowledge and empower people.
Financial Samurai
In 2009, Sam Dogen started Financial Samurai to help people handle their finances during the recession. He shares his own experience and financial wisdom through this blog.
Money Mustache
While it’s a rather odd name choice, 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 requirement for working towards financial independence. You can start at 20, or you can start at 40. Either way, the sooner you begin, the sooner you can retire!
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? You have the knowledge, resources, and inspiration. Now all you need to do is take action!
Make a financial independence checklist and get to work!
