If you are like me, one of your personal finance goals is probably achieving financial independence.
The road to this lifestyle is not an easy one, but many are getting there and at younger ages.You might also think this term is a “buzzword” or new “fad,” but honestly I don’t think the concept is going anywhere anytime soon.
If you need a quick refresher on what financial independence is, here is quick definition:
Financial independence occurs when you’ve saved enough to support your current living and spending habits for the remainder of your life, without actually having to work again if you chose.
Sounds pretty good, right? The concept got me hooked back in 2014 and has been a part of my life ever since.
Why Is Financial Independence Important?
Financial independence is important because it reduces your financial stress and removes your worry about whether you can pay your living expenses or that you’ll have enough saved and invested to live on for the remainder of your life.
It also gives you more freedom to choose what you do in your life. No longer are you relying on a paycheck nor are you dependent on others to ensure you generate income.
Since you are financially independent, you have enough money invested to generate passive income that you can withdrawal as salary. Plus, if you want to consider working, you can pursue part-time employment or start something of your own.
How much money do you need to be financially independent?
How much money you need to reach financial independence depends on your living expenses and how much you need reach year to live.
For financial independence and retirement, you’ve probably heard about the 4% retirement rule.
It basically claims that as a general rule, 4% is a safe withdrawal rate from your investments. Technically, in order to become financially independent, you’ll need to have saved 25 times your annual expenses.
The 4% number is a conservative and considered a safe withdrawal rate, as it ensures you have a steady stream of income but also an investment account that continues to generate income and keep up with inflation.
Achieving Financial Independence
If you know my story, I’m currently in the trenches to FI and it’s going to take some serious hard work.
I’ve certainly made some big strides in the last few years, so I have no doubt the future looks even more promising.
Some of you reading this may achieve financial independence sooner, others may take longer. No matter what side you fall on, give yourself credit for your interest in revolutionizing your life!
That said, let’s dive into some of the best financial independence tips that I’ve learned and I’m practicing right now.
FYI: There are no big secrets to reaching FI, but sometimes even the basic financial concepts are overlooked or not thought about. If you are looking for shortcuts or some overnight success tips, you won’t find that here.
1. Spend Less, Earn More
I think the most obvious one on this list, is also one of the most important. And because of that I still need to include it.
But a big factor in achieving financial independence is spending less, and earning more.
Minimize your expenses. This includes living in a more affordable area and home, reducing your car expenses or
Earn more. This is not always easy compared to cutting expenses (which can be challenging too). Don’t get lazy in your job, learn more to maximize your career worth, ask for raises, negotiate salaries, monitor your career trajectory.
Don’t expect your company to always recognize your value or worth (it’s unfortunate, but true a lot of times). But be heard, don’t be afraid to prove your value.
I wasted a few years of stagnant salary by being complacent and not speaking up. I left thousands of dollars a year on the table and time taken away from achieving financial independence.
2. Master Self-Control
If you did not read one of my earlier posts, you can check it out here. I went into some detail about self-control and your finances.
But I’ll do a quick recap here.
Self-control is one of the toughest aspects of life to master, but it is also so crucial for achieving financial independence too.
Without it, you may find your spending and your consumer debt start to balloon.
You might also make poor investment choices when the economy is signaling a downturn, which cost you money and years off your financial goals.
I’m not going to lie, mastering self-control can be REALLY CHALLENGING. But, if you continue to build good habits and self-discipline, you won’t even have to think about it anymore.
3. Maximize Your Savings Rate
The average savings rate in America is pretty bad, most save less than 5% of their income.
While the stagnant wage argument might be stale, it’s still a valid reason it’s hard for people to save money. But, I think it mostly comes down to how much you prioritize your savings.
Calculate what you can afford to save and pay yourself first when you get paid. Most people pay bills and spend first, which then leaves very little for saving.
I see money experts talk about various saving rate ranges like 10%, 15%, up to 25%. But none of those are enough.
Sure, if you make a million dollars a year you prob can be stick to smaller ranges, but if you make that much you’re probably are not reading this post either (;
This is where spending less and earning more will help you increase your savings rate. I started at less than 5% in 2014, worked my way up to about 30% in early 2017. And since then, I’m hovering at 60-65% without living cheap or having a six-figure salary.
4. Put Your Money to Work
Saving money is one thing, but to truly achieve financial independence, you have to be willing to put that money to work!
Your goal should be to have your money, generate more money while you sleep.
For example, investing in the stock market for the long-haul, allowing compound interest to go to work for you.
This also doesn’t have to be just the stock market. You can invest in real estate rental properties, flipping homes, or investing in real estate crowdfunding for diversification.
The point being, a savings account is good to have for emergencies, but once you really start saving a good amount, you need to put that money to work.
5. Utilize A Simple Budget (And Stick To It)
I’ll be honest with you here, I hate budgets. Can I tell you another secret? I have not made a budget or looked at one in two years. GASP!
I for sure created a simple one when I first started and you certainly should too. I’m comfortable now and really have my personal finance self-control down, that I don’t waste my time hardcore budgeting and getting fixated on the spreadsheets.
Until you get to that point, I would recommend you budget to track things like housing costs, food costs, and transportation. These are the most common — and usually the most — expensive parts of your life.
But visually seeing these numbers, cutting the costs, and optimizing them, you can really push your FI trajectory exponentially. The key is, you need to stick to your plans for the long-term.
Note: I do enjoy tracking my net worth from time to time using Personal Capital. Highly recommend it, plus it’s free to use.
6. Side Hustle And Invest
Earlier, I mentioned how you need to earn more. That was heavily focused on your career and salary.
But another way to get ahead in the earn more section, is start a side hustle and invest or save that income.
I’ve been side hustling since I got out of college, though I never made smart decisions with that extra cash until the last few years.
However, this extra cash can increase your savings rate and help you achieve financial independence much quicker.
Pending on what your side hustle is, you may also have yourself a future financial asset that can be sold for a nice sum of cash.
Many times it’s good to invest some of that money back into your side hustle in order to fuel growth, but at some point, it will be good to start investing that money into your own finances.
7. Grow Your Personal Finance Knowledge Bank
If you have read a lot of my previous content, you know I’m big into the “always be learning” ideology.
If achieving financial independence is a priority, you need to expand your personal finance knowledge bank (aka your brain).
When you are learning and reading about finance or investing, you’re molding your mind to think strategically with your money.
I wouldn’t be anywhere near where I am today, without reading books, blogs, and listening to podcasts. And even as I grow my expertise, I’m still doing the same thing I did when I was a complete finance noob.
Here are just a few personal finance books I recommend:
- Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!
- I Will Teach You to Be Rich
- Napkin Finance
- The Simple Path to Wealth
- The Millionaire Next Door: The Surprising Secrets of America’s Wealthy
- MONEY Master the Game: 7 Simple Steps to Financial Freedom
8. Avoid Future Consumer Debt
One thing that will kill your financial independence goals, is consumer debt. Between interest on the debt and trying to catch up on payments, it can knock your net worth and investing returns down.
Want to know how bad American consumer debt is? In this article, Americans’ collective debt surpasses $4 trillion for the first time.
TRILLIONS. Let that sink in.
Consumption, of course, can be good for the overall economy and it is okay to treat yourself, but you shouldn’t go into debt just to fulfill instant gratification.
Breaking the consumer mentality and ignoring what others have, will keep your debt down in the long run.
9. Adopt a Somewhat Frugal Mindset
Another personal secret I want to share with you. I’m not a huge frugal person. But wait, this section is about adopting the mindset, you hypocrite!
What I’m referring to is extreme frugality. Like in the sense of never buy yourself that cup of coffee, because it will make you rich in the future! Or never go out to eat, you’ll be able to retire early!
Yes, it is important to not go out to eat every day or buy something every time just because you want it. But practice some basic frugal living tips.
I also like to call this the “Millionaire Next Door Mindset” based on the book The Millionaire Next Door.
Think of things
Final Thoughts
The above tips are ones I’ve learned in the last few years and are currently working on to achieve financial independence. I hope these can also help you in your own journey.
It can be a tough road, especially at first when you basically are doing a 180 on your old financial lifestyle.
I essentially had to start from scratch in my mid-twenties with my finances, investing, and career to be better off today. But those sacrifices have now become so routine, I don’t miss anything that I’ve cut or changed.
Are you interested in achieving financial independence? How are you planning on reaching this goal? Let me know in the comments below.