Financial independence is a term often used without consistent meaning. Is it complete freedom from debt, when you no longer have to work in order to generate any income? Some see it a simply being self-sufficient. Others see it as the ability to make decisions based on what makes you happy and not what makes you money. All different, all correct. Never one-size fits all.
For most retirement, by default becomes financial independence, but do you want to work 40 plus years so you can one day finally say “I quit”? Why wait until then to do all the things you always wanted to, but never could? This should not be your life’s goal. Imagine learning to skydive at 67. Pretty neat, but would you rather take that leap on your 45th birthday instead? For a growing number, financial independence has become the ultimate goal.
Do you want to spend more time with your loved ones, travel more? Just aiming for early retirement? While full financial independence may be unattainable, partial financial independence is achievable. Truth be told no one should have to live paycheck to paycheck.
Keep an open mind and be flexible!
Some changes need to take place and at times it may not seem easy, but seeing the financial improvement over time will make it all worthwhile. Here are a few you can start with today…
Save regardless of your income level.
No matter how small the amount you can save may seem, get started now because compounding interest is key. Do not wait until you get that raise because you will find an excuse to delay or some way to spend it and never get started. Make saving automatic if you have to because you must pay yourself first. Start now and watch your money grow over time. Many may be thinking that with retirement 30 or even 40 years away, why start now?
The magic of compounding
Historically the S&P has earned approximately 8% a year. I will use that for this example. Say you start saving $1,000 a year and do so for only five years ($5,000) at age 21; in 30 years you will have more than $40,000. Starting ten years later, at 31, would leave you with only $18,000.
Learn the difference between wants and needs
A need is something you can’t live without. We all need to eat, but it does not have to be steak and lobster every day. A want is something you would like to have, but It is not a necessity. You do not need 43 pairs of shoes along with the matching purses, belts or other accessories. Shop in moderation.
Live beneath your means
Spend less than you earn by living beneath your means, not within your means. There is a difference and while this should be obvious, for many, it isn’t. That shiny new luxury car may impress the neighbors, but it will definitely depress your savings. You cannot buy a new car every five or six years it is fiscally irresponsible and downright absurd.
Reign-in your spending
Step away from consumerism. That behavior destroys your financial health. What you bought yesterday is now garbage. Today you borrow to buy something new and tomorrow you’ll repay with interest. And the cycle continues. How it is good that you spend money, sometimes money you don’t have, on things that you don’t need? Instant gratification is your enemy.
Increase your income
Find a side hustle. Get a raise, probably the hardest as it not solely dependent on you. Get a new job. I am not advocating that you just quit, but since you are working you can afford to be selective when looking for better options. In a 2014 article Forbes reported that employees who stay in companies longer than two years make up to 50 percent less over their lifetime.
There are many other steps that can be taken. These are but a few.
I am not a financial advisor. I hold no fancy degree and as such this is not financial advice. This is simply what I have done and recommend my children do when the time comes. Due diligence is key. Visit The Financial Independent One.