What Financial Independence Really Means (And How To Achieve It)
Financial independence is not a rare goal for people who are thinking seriously about their money. It’s the only way to truly secure your future, to protect it from all the tumults that can come from a life of employment, and it’s the most reliable path to wealth. However, what does it truly mean to become financially independent, and what can you do to make it a reality? Here, we’re going to look at some of the answers that have gathered by those who have taken this path before and how to follow in those footsteps.
What does it really mean to become financially independent?
Many people are mistaken in believing that financial independence is only about being in charge of your own income, not having to rely on employers, or the help of anyone else to keep money coming in. However, that’s not the whole story. That’s how you start on the journey, but financial independence is also about making sure that you’re making better use of the money that you do earn, protecting your assets, and building enough avenues of wealth to make sure that even if you lose one, you’re still able to sustain yourself.
Make a serious commitment to it
There will be fear with any decision as major as aiming for financial independence. However, it’s important that you get over that fear. You have to decide you want to be independent more than you fear failure. Start saving towards it as soon as possible with a rule called “pay yourself first.” This means that before you start spending your current paycheck, even on vital things like rent, you set aside a portion towards your long-term goals. Whether that’s building a fund for your startup, an emergency fund, or otherwise, it’s important to ensure that you are financially committed every step of the way.
Get used to setting goals
An important part of the step above is that it establishes that you have goals. At the start, those goals might be as simple as starting a business or putting a certain amount of money within a fund. Learning how to set and track goals for personal growth and wealth will be essential to ensuring that you’re always on the right track. Plus, with an aim as lofty as “financial independence,” it’s easy to lose steam or lose focus without breaking it down into smaller goals first. What some of those goals are, we’re going to look at below, so keep reading and start writing any that sound like aims you should incorporate.
Go out on your own
As mentioned, the first step of that journey is that you become in charge of your own income. This is the step that most people falter at, simply because there’s a lot of risk that comes with when you start freelance business and take ownership of all of the successes and all of the failures yourself. You can build yourself something of a support structure to help with this, of course. You can work in a career that helps you gain the skills you need to manage a business well, find a mentor who can help you find your feet, and ensure you do your research to find that your business idea is more likely to make it.
Don’t settle for one source of income
Starting a business can become your main source of money, but you will find that working harder, longer, or even smarter isn’t the best way to grow the wealth you need to secure the future. Diversifying how you earn that wealth is much more effective. When you diversify, such as getting into investing or renting our properties, you make sure that you have revenue streams to rely on even if you lose one of them. For instance, if an investment goes wrong, you still have the income from your business to rely on, and if the business fails, you still have the money that you’re making from your properties. The more you diversify, the better your chances of staying secure are.
Learn what debt is for
Staying out of debt if always recommended when you don’t know how to manage it effectively. However, you don’t necessarily have to avoid debt to become financially independent. What is important is that you learn the difference between good debt and bad debt or, rather, that you learn what you should be using debt for. Loans should be taken out for investments that are going to help you reach your financial goals. For instance, you might take out a business loan to get your startup up and running, or a property loan to get an investment property on your portfolio. What you shouldn’t use debt for is to boost your finances when you have spent too much or fallen into a financial emergency. Sometimes you might have no choice, but this is to be avoided when possible.
Becoming financially literate and aware
Simply put, you’re never going to be able to be financially independent unless you know how to make better use and start to save money. You have to start tackling the unconscious ways you get in the way of your own money management, which means you must become aware of what you have, how that will change, how much you can save, and how much you can spend. There are accounting apps that are making this much easier. You can track your expenses, manage your cash flow, and see how much you should set aside with each paycheck towards your financial goals. Lose track of your money, and it’s easy to start relying on debtors again. You will start slipping back into debt and, with that, add a major hurdle between you and your eventual financial goals. Keeping a closer eye on your money makes sure that doesn’t happen.
Become your own safety net
To some degree, society and the people that we know offer a safety net for when things get tough. When emergency situations arise or spending gets out of hand, you can fall back on them. However, they always come with a cost. One such example is the spiral of debt you can get yourself into, while other people are lucky enough to be able to rely on parents or friends to get them out of a tough spot. However, you should be your own safety net or, rather, have your own safety net. Like some, you might make room in your budget to establish an emergency fund that can take care of sudden major expenses, for instance. Otherwise, consider investing in protections such as income insurance.
Reducing your obligations
To some degree, financial obligations are unavoidable. If you have a business, you have to invest in it, and you also have to insure it. If you have a home, you have to pay the mortgage on it. However, where possible, you should avoid unnecessary financial obligations. If you don’t have a family to maintain, then mortgaging a house can, for instance, tie you down, making it harder to be flexible, such as moving to a different state to chase an opportunity. Consider what obligations you absolutely need to make, but avoid getting yourself into too many financial arrangements that tie you down and make it difficult to be agile. Independence isn’t just about supporting yourself; it’s also about not owing too many other bodies too much of your income.
Live within your means
Enjoying a certain standard of life might be the eventual goal, but if you start trying to “look the part to be the part” immediately, then you can set yourself back a great deal. Frugality isn’t the end-all and be-all of being wealthy, but it’s a good habit to learn. Treating yourself is fine, but make sure you measure it and manage it so that your treats never get too far in the way of your goals. Keep your eye on the prize.
Be flexible to opportunity
Above, we mentioned how it’s important to manage your obligations so that they never get in the way of your ability to be flexible. However, what does it really mean to be flexible? It means that when a new opportunity to secure your future and build wealth arises, you’re able to act on it. Establishing financial flexibility in your business means you can react to changes in supply and demand with ease. In personal life, it means you can invest when you need to, when you need to, and always manage your risk. Financial flexibility is one of the key talents needed for long-term success.
With financial independence comes the ability to live without the fear of someone having control of your future. You can never fully control what happens yourself, but you do make the key decisions that determine your livelihood, your successes, and your failures. Hopefully, the points above help you develop your own plan towards true financial freedom.
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