Financial independence is achievable, but you have to follow the steps to get there. These are the 4 steps to get you on track towards financial independence
Financial independence means being able to do whatever you want in life without having to worry about money.
You get a new boss who is impossible to work with? Just quit.
Do you want to spend a year traveling the world? Pack your bags!
Do you want to start your own business? Start writing up a business plan!
You can’t get there overnight. Achieving financial freedom takes the right planning and the discipline to stick to the plan even if things are sometimes harsh. It also means a lot of sacrifices. Your friends are taking exotic vacations, buying brand new cars, buying big houses with swimming pools and outdoor kitchens.
Don’t give up what you want most for what you want now.
You’re staycationing. You drive a ten-year-old Toyota. You’re still living in the same apartment you’ve been living in since you moved out of your college apartment. You keep your annual spending low. You have a savings goal.
But all of the sacrificing is front loaded. When you get to the forth and final step on this list, you will be free while all of those people you’ve spent years envying are chained in place by credit card debt, car loans, and a huge mortgage.
You in? Good, let’s start right now. Here are 4 steps towards financial independence that you can follow to reach the freedom you’ve always wanted.
Step 1 – Get Control of Your Money
Getting control of your money is simple; spend less than you earn.
What are your monthly expenses? Some of us bury our head in the sand when it comes to our spending. Facing it can be scary but you must.
Next, you can set up a budget. A good rule of thumb is the 50/30/20 method to allocate your money. This will work well for most people, but remember, we’re trying to achieve financial independence here!
The more money you can save, the better. This allocation doesn’t mean you have to spend the entire 50% on essentials. And if you have debt, swap the 30 and 20. Put 30% towards paying off debt (at least) and 20% for discretionary expenses.
Now set up your budget categories. It might take a few weeks or months of tracking to see your patterns, but it will be worth it.
Let’s talk about debt. Every month it costs you money. You can’t achieve financial independence if you’re being held back by debt. Credit card debt is the most serious since it usually has the highest interest rate. Attack it with the snowball or stacking method.
Student loan debt can be refinanced with Earnest for a better interest rate which will save you thousands of dollars over time. Lending Club can do the same for any personal loan debt you have.
You must rid yourself of this debt as quickly as possible.
It’s important to see your whole financial picture and our favorite tool to od this is Personal Capital. It’s free and will help you budget, manage your investments, plan for retirement, and calculate your net worth.
Step 2 – Trim The Fat
Having completed Step 1, we now understand where our money is going. Knowing is half the battle when you’re working towards financial independence. The other half is slicing out the fat. No one becomes wealthy by spending all their money. Trim will cancel recurring expenses for things like subscription boxes, gym memberships, and music services. When you’re striving for financial independence, these things are luxuries you can do without. I work out every day, and I don’t belong to a gym.
Step 3 – Increase Your Income And Productivity
At some point, there isn’t any more fat to cut so if you want to reach financial independence, you’ll have to make extra money.
Step 4- Multiply Your Savings Rate
At some point, you have no more time left that can be used to make more money. You’re working a regular job and have at least one additional income stream. We have to find ways to make money that don’t require our time. That’s called passive income, and one of the best forms of passive income is investing. When you invest your money, it makes money for you. You don’t need a lot of money to start investing, but you will never have a lot of money if you fail to invest.
It Was All Worth It
If you want to live like most people can’t, you have to be willing to do what most people won’t. There will be times along the way when you want to give up. You want to do all of the things everyone else gets to do.
When you feel that way, just imagine what life will be like once you’ve become financially independent. You can do what you want to do when you want to do it.
No Monday morning dread, no depressed feeling when you realize your once a year vacation is almost over and you have to go back to “real life” soon. No going to a job you hate surrounded by people you can’t stand. You have no debt keeping you up at night.
If you can stay the course and retire early, I’m sure you’ll agree that once you reach financial freedom, it was all worth it.