Financial independence means that you can stop worrying about money and start enjoying your life. While this isn’t the same thing as retirement, it can help you retire younger and live longer without stress. Unfortunately, you can’t achieve financial freedom overnight. It’s going to take work and discipline to stick to your plan even when things get stressful.
Financial independence also means that you’ll have to make sacrifices, including stopping going on vacation, buying new cars, and overspending on purchases. Let’s discuss how you can start reaching financial independence today.
1. Learn How to Better Control Your Money
If you’re spending less than you earn, you’re already well on your way to having a handle on your finances. Consider your monthly expenses. If you’re a homeowner, this will include your mortgage. If you’re a renter, this will include your rent.
The odds are that in order to get approved to rent your apartment, your landlord ensured that your income met their rent-to-income ratio requirements. What this means is that your landlord made sure that you’d be able to afford your rent based on your income. If you have an ideal rent-to-income ratio, you’re spending 30% or less of your annual income on housing costs.
What they do not factor in, and what you should, is your other monthly expenses like food, your pet bills, your Medicare or other health insurance, gas, electricity, internet, transportation costs, and anything else you pay on a monthly basis.
If, with all of these bills combined, you’re spending about what you earn at your job, then you are not financially independent and will need to adjust your lifestyle.
A good way to do this is by setting a budget to allocate your money. If you go through your finances and find that you’re spending way too much money on eating at restaurants, then it’s time to cut back. When trying to achieve financial independence, make an effort to save as much as possible.
2. Make Necessary Sacrifices
Now that you know where your money is going and have set a budget, it’s time to begin making sacrifices. People don’t become rich by spending their money as fast as it comes in. Making sacrifices isn’t always easy, but you have to start trimming your budget as soon as possible to start saving money.
You can choose one category to focus on per week and begin trimming the fat. For example, if you notice that your grocery costs are high, you might want to look at what you’re buying and consider planning your meals ahead of time, so you know exactly what you’ll spend at the grocery store.
3. Work Smarter, Not Harder
At some point, you’ll realize you can only make so many sacrifices. You can’t simply turn your heat off in the winter, so it’ll be necessary to make more money. There are a number of ways to do this, but if you’re already at a job that offers upward mobility, you can ask to be considered for a raise and/or promotion.
Make sure you’re prepared when you talk to your manager and bring data about similar jobs in the area so that you can make your case. Next, list out all of the reasons why you believe you deserve a raise, from working extra hours to getting certifications to help with your job.
If you don’t get a raise that you truly believe you deserved, it’s time to start looking for another job. When you change jobs, you should be able to get a salary increase that might be more than a raise would have been in the first place.
If you don’t find a job to replace the one you have, you might consider getting a part-time job to help you earn more money. Consider how many hours you have after work and on weekends that you could be using to earn money instead of watching television.
If you simply don’t have enough time in a day to have two regular jobs, consider a side hustle like babysitting or becoming a freelancer. This can help you earn extra money on your own time.
4. Increase Your Income Passively
There are only 24 hours in a day, and you can’t work all of them, so you’ll need to eventually increase your savings through passive income. One of the best ways to earn passive income that requires very little work on your part is to invest. The good news is that you don’t need a lot of money to begin investing and there are multiple ways to invest, from investing in stocks to opening a Roth IRA.
You can also open an individual savings account (ISA). These savings accounts come tax-free so that you can grow your money, but you can only save or invest a certain amount per year in an ISA.
5. Don’t Give Up
Some years are going to be harder than others when it comes to your finances, and you need to be able to handle them. If you get laid off, then you’ll need to immediately act to save as much money as you can while searching for another job. Don’t wait until your savings has been depleted to cut your spending.
Instead of giving up, be flexible and take action. If you get laid off, immediately begin looking for a new job instead of wallowing in it or taking a few days off as vacation.
The Importance of Financial Independence
You don’t have to be a millionaire to achieve financial independence; you just need to be earning enough to keep you covered in terms of bills and potential emergencies.
Remember, you won’t achieve this independence in a day, so be patient and enjoy the process and the journey of learning before getting frustrated with your finances. It can be difficult when all of your friends are going on vacation without you, but remember that you’re working toward a larger goal.
Staying the course can help you retire early, buy a house sooner, and be able to afford your wedding without needing to take out a loan.
About the Author:
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. He is currently a contributing editor for 365 Business Tips. Matt is passionate about marketing and business strategy and enjoys the San Diego life, traveling and music.