Financial independence is the state of having enough revenue to pay for living expenses for the remainder of your life without having to work full-time for basic necessities. This way of life is not necessarily achieved through one cookie-cutter way.
Those with financial independence often have assets that generate regular funds that exceed expenses in their life. One does not need to start off wealthy in order to attain such independence. In fact, a variety of ways exist to make financial independence a way of your own life. It all begins with your habits though.
Here are just a few habits to help generate wealth:
- Pay yourself first. We’ve discussed this previously here on Saving Advice, but we can’t stress the importance of this action enough. Putting yourself first goes beyond being selfish; it’s about ensuring you’re creating a solid foundation now so that you can worry less about finances later.
- Obtain profitable assets. Investors often debate on whether certain purchases such as a home are truly an asset due to the money that needs to be put in to it over the years. Assets should create more money in your pocket than take out. Which assets are right for you? You can learn more about how to pick them here.
- Spend less, earn more. If you are spending more than you earn, you setting yourself up for financial hardship. This may seem like an obvious statement, but you’d be surprised at how often people unfortunately continue to do this. In one month, write down all your expenses versus your income. Include every little purchase, and leave no stone unturned. This will really help to show you if your spending is out of hand. Remember, a $2 coffee here and there still adds up. Could you be using that money somewhere else more useful? Stay on top of your expenses and create a supplementary income if you need to in order to get ahead. Having multiple sources of income can put you on the fast track toward financial freedom.
Having a strategy in place will also be important for financial independence. Here are some important ones to consider:
- Define your long-term financial goals. When defining your financial goals, always be as specific as possible to help hold you accountable. Do you find it is easier to save if you use automatic savings? Do you feel like you might benefit from online investing tools? What are your current savings and spending habits? How much will it take to get you out of debt? All these questions are important to keep in mind as you create your strategy.
- Make sacrifices. If you are an impulsive or emotional shopper, you will need to gain some self-control in order to get your finances in order. Avoid any temptations of shopping by unsubscribing or immediately deleting e-mails with specials or coupons that are not related to necessities in your life (food, household bills, etc.). If you feel tempted to make an unnecessary purchase, especially for the sake of instant gratification, turn it around to put the amount you’d spend toward your savings or an investment account instead. The point is to find something productive to do when shopping desires arise.
- Focus on moving forward in your career. By staying in the same position in your job or your career, you may be holding yourself back. Recognize when a job has come to a standstill financially and focus on trying to advance your career. Whether self-employed or not, working toward steadily increasing your income throughout your life will be of great assistance toward a strong financial base. Don’t be afraid to ask what opportunities are available and what needs to be done in order to attain them.
- Diversify your financial portfolio. Don’t rely on one investment. Instead, diversify your investments by spreading them across different assets. Stocks, bonds, valuable items like fine art, and a Roth IRA are just a few examples to diversify your investments. If investing seems too overwhelming for you, there are now online tools to help you through the process, which are great for beginner investors.
- Know your write-offs. You can save a little more every year by paying attention to what tax write-offs you have a right to. This involves doing some research per your own situation, but don’t be afraid to sit down and talk to your accountant about these as well. We covered quite a few unique tax write-offs here that you should check out.
Overall, when beginning your journey to financial independence, try not to overthink the specific amounts. For instance, if you can’t save 25% of your paychecks one month as you had originally planned, adjust it accordingly that month. But, make sure you are still doing some kind of action that works toward each of your goals. The point is to save something each and every time.
By incorporating the above habits and strategies, you will have a strong starting point to achieve financial independence. The key is to stay consistent (and strategic) with your finances.