Financial Independence is a Skill Set
If you’ve ever dreamed of becoming financially independent where you have more income than you do expenses? Why are you wasting any more time on just thinking about it? Make now when you begin that pathway towards Financial Independence? Remember financial independence basically means that you have enough money saved as well as enough passive income from your assets to supply all your needs, so you don’t need a paycheck are what we refer to as active income to pay for your expenses. So, in terms of a skill set, what do we need to do to create financial independence?
First, we need to educate ourselves. Becoming financially independent means becoming financially literate, which can be a learning curve for anybody who has never done more than put money into a savings account or something like an employer’s sponsored retirement plan. Make sure you can manage your own personal finances. Create a monthly budget that matches your needs, understand the expenses, how to create reasonable and timely financial goals as well as how much to save and then as importantly how to avoid bad financial habits such as overspending.
You must have a plan; wealth building requires planning. You need to calculate how much you spend, how much you earn, how much you can save and how much you can invest. Having a clear and defined budget will help you get a number on how much money is required to fulfill your needs without needing to work so you’re starting to develop that equation for financial Independence.
Make a budget. People need to determine their goal whether that’s a goal of early retirement, having more freedom options or whatever it is you’ve got to get it from the budget. You need to make sure that you have a plan for all of your money. You need to make sacrifices now to be able to get what you want in the future. Work on a budget that reflects what you must, what you should, could and won’t spend money on then stick to it.
Keep realistic expectations. Unless you win the lottery, or you have some great streak of luck in the stock market, you’re unlikely to reach financial independence quickly. Unless you’re already a millionaire it’s almost impossible to reach financial independence at a young age. You can, however, reach it by your desired age through planning with a realistic pathway. What you want to do is focus on setting attainable goals like reducing or eliminating your debt, setting up an emergency fund with several months of expenses or maxing out your retirement accounts.
Diversify your assets. Growing wealth requires putting in a variety of different Investments. It’s not a good idea to put all of your eggs in one basket. Same goes with your investments and financials. It’s always better to diversify this way you can keep your income safe, and you won’t have to rely on the success of one leg or one part. Putting your money into savings accounts is probably the worst place to put anything over and beyond the emergency funds because the expected return in something like a savings account is going to be below inflation start. Save to invest rather than just save to save.
You must get rid of those debts; pay off the debts. Anything you’re still paying off is a step backward away from financial independence. Debt is stealing from your future. Pay off your debts and get the risk-free return that comes with it. Cutting debt out of your life means you can focus on other parts of the financial plan like asset goals when you don’t have to pay back the banks that borrowed money.
Track your progress. Once you’ve already got something in motion towards your goals you need to pay attention to be able to track your progress or lack of progress. It’s going to take time to fully achieve financial independence, and nothing can reliably get you there faster. The best way to reach your goal is to continue to take the same steps over and over and over towards your goal.
Automate your savings. The easiest way to see your money grow is to automate savings and the investment of those savings. First and foremost, learn to pay yourself first, it’s rule number one. Participate in any type of employer retirement plan and take advantage of any corresponding contribution benefits that may be available to you. It’s always a good idea to set up an automated withdrawal for the emergency fund as well as an automated allocation towards a brokerage account or something like that.
Learn to be frugal. People get rich not by spending money but by learning how to cut corners. Learn to be frugal and spend less than you earn. Many millionaires are wealthy because they know how to keep and invest their money and not spend it on unnecessary things. Being frugal can help you build wealth because being frugal means you are becoming more resourceful with your money; your money is more meaningful to you. Being frugal is prioritizing your spending so you can focus on building wealth and spending your hard-earned money on what’s important to you. Use your money to build wealth which will get you freedom.
Finally protect your wealth. Don’t forget to protect your wealth as you build it. Consider insurance and investment products that can be a place to park your assets while also doing things like minimizing taxes and other associated liabilities. Or try a source that provides assets in the event of a death or other future event that could impact either you your family, your inner circle or whatever else you’ve set up that needs to be protected.
Financial Independence is a skill set and it’s going to take time. It’s also going to take effort and it’s going to take resources as well as energy, but it is attainable. Everything on the debt or wealth side of the financial plan is just math and with a proper plan of action and execution, anything is possible.