How To Achieve Financial Independence
Ready to reach financial independence and gain more freedom with every dollar you earn? For most people, hard-earned financial independence comes with the freedom to make decisions based on their passions rather than financial constraints. Ready to live life on your terms? Through effective planning, you can quit living paycheck to paycheck.
What Does Financial Independence Look Like To You?
What do you wish you could afford? Where does your paycheck lack? For some, it means having a cushy rainy day fund to buy luxury items. For others, it is to travel more. For some folks, it is to have money banked so more time can be spent with family and friends, and less time spent working. There isn’t a one-size-fits-all goal with financial independence… it’s all about what you want out of life and how to reach it with your current situation.
Keys To Financial Freedom
It all starts with building wealth. Wealth is built through investments and savings. With wealth, you start to create a nest egg of funds you can use to have for emergencies, or you can build enough in your savings for bigger purchases, like a down payment for a car or house. This fund is your key to financial freedom. A healthy savings account gives your paycheck wiggle room and sets you up for long-term success.
Investments
Make your money work for you. Investments can take many forms—from stocks, bonds, and mutual funds to real estate and retirement accounts. As you build your portfolio, carefully weigh the risks that come with each option. Choosing unwisely can put your financial freedom at risk, while smart decisions can open the door to strong returns. Always consider liquidity before investing: stocks are typically easy to sell quickly, while assets like real estate may take much longer to convert back into cash. And remember, diversification is key—spreading your investments helps protect you from putting all your eggs in one basket.
Savings Accounts
The less risky cash equivalents are savings account types like traditional savings accounts, savings certificates, and money market funds. These accounts are typically insured by financial institutions through the NCUA or FDIC up to $250,000 – meaning if the financial institution goes under, your money is safe. Your money won’t grow as fast, but more often than not, you’re guaranteed a certain return on your money.
How To Reach Financial Independence
To get the extra funds to put aside in a savings account or start investing, you need to dive into your personal finances.
- Create and stick to a budget. Start tracking your income versus spending habits to understand the big picture of your spending habits. Where can you cut back? Are there subscription services you can cancel? Can you reduce your phone or internet bills with a cheaper provider?
- Build an emergency fund. After evaluating your budget and finding ways to save, open a savings account to build an emergency fund. Aim for 3-6 months of living expenses to start with. An emergency fund will help prepare you financially for unexpected costs that arise, like losing a job, medical expenses, etc.
- Strategically pay down debt. You can live financially independent if you are drowning in debt. Debt shackles lots of people from reaching their financial goals, and keeps them from a debt-free lifestyle. Research debt payoff strategies, like the snowball or avalanche method, and make it a priority when you are budgeting.
- Save more. Your emergency fund should be separate from your other savings accounts and investments. Once you get to a healthier financial situation, start putting more away into a savings account or start investing.
- Consider multiple revenue streams. Whether you pick up a part-time job or explore side hustles, making more money with the goal of paying off debt and saving more will help you reach your financial independence sooner. It may be hard in the short-term, but think of the long-term gains.
Financial independence isn’t an overnight achievement. It takes planning and hard work. However, you got this! Try contacting your local financial institution to see if they can open up a savings account that is right for you or have any additional guidance to help you reach your financial freedom.