Financial independence- to be able to live independently of a paycheck, and to truly own your own time. It’s the dream for many people, but not so easy to achieve. If you’re interested in reaching financial independence, it means you have to be organized about your money, understand your goals, and have a clear plan to reach them.
Incorporate these tips into your lifestyle to head down the path of financial independence.
Before we dive into these tips, here’s one caveat: becoming financially independent takes time. A lot of time- years and years. Even for extremely high earners, it takes years to stockpile enough cash and investments to live off of for thirty or more years. So, don’t feel like you need to do all theses things by tomorrow. It’s a long term goal for everyone.
The first and biggest step to financial independence is to eliminate any debt. You can’t be financially independent if you have to send a check to your credit card issuer or your student loan lender every month.
Becoming debt free allows you to save more money. It also helps create the independence side of financial independence. When you’re debt free, all your money belongs to you.
Start With Your Tax Deferred Accounts
The best place to start saving and investing money is with tax deferred accounts. This is accounts like your 401(k), a Health Savings Account, and your IRA. By maxing out these you stash cash away for your future years as well as cash in on tax benefits. (Contributions to your Traditional IRA, for example, are tax deductible.)
Set Financial and Life Goals
What does FI look like to you? Do you want to travel, or are you interested in staying home and writing your novel?
Paint as detailed a picture of your future as you can. Not only does this give you motivation for what you’re working towards, but it provides an outline of what’s to come.
If you know you want to travel after leaving your job, then you need to account for a travel budget in your savings. If you want to sell your home and downsize, you can account for that in your budget. Knowing what the future will look like in terms of what you want to spend your money on will help you understand how much money you need to save.
Save, save, save.
FI doesn’t happen over night, but rather over time. You’ll need to save continuously for years to hit this goal. Start early and save, save, save. If you hit a road block one month, don’t let that stop you from trying again next month. When it comes to becoming financially independent, anything you can save is a good amount of money.