How do I become financially independent to the level that I can be able to assist others?
Share
Lost your password? Please enter your email address. You will receive a link and will create a new password via email.
Please briefly explain why you feel this question should be reported.
Please briefly explain why you feel this answer should be reported.
Please briefly explain why you feel this user should be reported.
10 Ways to Become Financially Independent
After the 2008 economic crisis, many people assumed they would never be able to reach true financial independence – the ability to live comfortably off one’s savings and investments with no debt whatsoever.
However, individuals willing to use their time horizon to plan and adjust their spending, savings, and investment behaviors might just find financial independence is possible. Here are 10 ideas to get started.
1. Visualize first, then plan. Start by considering what your vision of financial independence actually looks like – and then get a reality check. Qualified financial experts can examine your current financial circumstances, listen to what financial independence means to you, and help you craft a plan. The path to financial independence may be considerably different at age 20 than it is at age 50; the more time you have to save and invest generally produces a better outcome. But at any age, start with a realistic picture of your options.
2. Budget. Budgeting (http://www.practicalmoneyskills.com/budgeting/) – the process of tracking income, subtracting expenses, and deciding how to divert the difference to your goals each month – is an essential first task of personal finance. If you haven’t learned to budget, you need to do so.
3. Spend less than you earn. It might be obvious, but it’s one of the most difficult financial behaviors to execute. Adhering to a lower standard of living and expenses will help you put more money into savings and investments sooner.
4. Build smarter safety nets. Emergency funds and insurance are rarely discussed in combination. The traditional definition of an emergency fund is a separate account for cash that can be used instead of credit to repair a broken appliance or other expense that may run a few hundred dollars. However, many people keep insurance deductibles high to keep premiums low. Would you have enough cash on hand to cover an insurance deductible if you had a sudden claim? If not, build your deductible amounts into your emergency fund.
5. Eliminate debt. Though consumer debt levels have generally fallen since the 2008 financial crisis, the Federal Reserve Bank of New York reported in February that home, student loan, auto, and credit card debt began creeping up again in 2014. Getting rid of revolving, non-housing debt (http://www.practicalmoneyskills.com/costofcredit) is one of the most effective ways to free up money for savings and investment.
6. Consider your career. Financial independence doesn’t require you to quit a career you love, but you really can’t get to financial independence without a steady income to fuel savings and investments that will build over time. Speak with qualified advisors about your income, benefits, and retirement picture first, and see if you might be able to expand your sources of work-related income, such as consulting part-time. Also keep in mind that over the age of 50, the Internal Revenue Service allows you to make catch-up contributions (http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits) to both 401(k) and IRA accounts.
7. Downsize. You’ll generally reach wealth financial goals faster if you can cut your overall living expenses. For some, that means selling your home and moving to a smaller one or to an area with lower living costs and taxes. You can also sell or donate property you don’t need and use those proceeds to extinguish debt or add to savings or investments.
8. Invest frugally. Become a student (https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/understanding-your-retirement-plan-fees) of investment fees and commissions because they can cut significantly into your principal. Make a full evaluation of fees you are paying on every investment account you have and if you’re working with a licensed professional who sells you financial products, know what fees they’re charging for their investment and advisory services.
9. Buy assets that generate income. Stocks, real estate, collectibles, or cash investments all have up and down markets. But do your homework and focus on investments bought at attractive prices that are likely to appreciate over time. Also, don’t forget to study the tax ramifications of any investment transaction you make.
10. Always know where you are financial. Financial planning isn’t about making one set of financial decisions and assuming you’re set. Lives and situations change and your financial planning must be flexible enough to withstand both positive and negative changes without derailing your hopes for financial independence. If your forte is not investment, financial planning, or tax matters, by all means, bring in qualified experts to help. But financially independent people generally have their money issues at their fingertips not only for their own use but for estate purposes as well.
Bottom line: Financial independence involves diligence and a bit of sacrifice, but even the smallest moves can yield big outcomes.
This article is intended to provide general information and should not be considered health, legal, tax, or financial advice. It’s always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.
These 12 Habits Will Help You Reach Financial Freedom
Set yourself on the right financial path
Achieving financial freedom is a goal for many people. It generally means having enough savings, investments, and cash on hand to afford the lifestyle you want for yourself and your family—and a growing nest egg that will allow you to retire or pursue the career you want without being driven by earning a certain amount each year.
Unfortunately, too many people fail to achieve it. They are burdened with increasing debt, financial emergencies, profligate spending, and other issues that thwart them from reaching their goals. Then there are unexpected events, such as a hurricane or earthquake—or pandemic—that overturn plans and reveal holes in their safety nets that weren’t visible before.
Trouble happens to nearly everyone, but these 12 habits can put you on the right path.
KEY TAKEAWAYS
1. Set Life Goals
What is financial freedom to you? A general desire for it is too vague a goal, so get specific. Write down how much you should have in your bank account, what the lifestyle entails, and at what age this should be achieved. The more specific your goals, the higher the likelihood of achieving them.
Next, count backward to your current age and establish financial mileposts at regular intervals. Write it all down neatly and put the goal sheet at the very beginning of your financial binder.
2. Make a Budget
Making a monthly household budget—and sticking to it—is the best way to guarantee that all bills are paid and savings are on track. It’s also a regular routine that reinforces your goals and bolsters resolve against the temptation to splurge.
3. Pay Off Credit Cards in Full
Credit cards and similar high-interest consumer loans are toxic to wealth-building. Make it a point to pay off the full balance each month. Student loans, mortgages, and similar loans typically have much lower interest rates; paying them off is not an emergency. Paying on time is and will build a good credit rating.
4. Create Automatic Savings
Pay yourself first. Enroll in your employer’s retirement plan and make full use of any matching contribution benefit. It’s also wise to have an automatic withdrawal for an emergency fund, which can be tapped for unexpected expenses, and an automatic contribution to a brokerage account or something similar.
Ideally, the money should be pulled the same day you receive your paycheck, so it never even touches your hands, avoiding temptation entirely. However, keep in mind that the recommended amount to save is highly debated. In some cases, the feasibility of such a fund can be a question.
5. Start Investing Now
Bad stock markets can make people question this, but historically there has been no better way to grow your money than through investing. The magic of compound interest will help it increase exponentially over time, but you need a lot of time to achieve meaningful growth. Don’t try to be a stock picker or trick yourself into thinking you can be the next Warren Buffett. There can only be one.
Instead, open an online brokerage account that makes it easy for you to learn how to invest, create a manageable portfolio, and make weekly or monthly contributions to it automatically. We’ve ranked the best online brokers for beginners to help you get started.
Achieving financial freedom can be very difficult in the face of growing debt, cash emergencies, medical issues, and overspending, but it is possible with discipline and careful planning.
6. Watch Your Credit
Your credit score determines what interest rate you are offered when buying a new car or refinancing a home.1 It also impacts seemingly unrelated things, such as car insurance and life insurance premiums.
The reasoning is that someone with reckless financial habits is also likely to be reckless in other aspects of life, such as driving and drinking. This is why it’s important to get a credit report at regular intervals to make sure that there are no erroneous black marks ruining your good name. It may also be worth looking into one of the best credit monitoring services to further protect your information.
7. Negotiate
Many Americans are hesitant to negotiate for goods and services, worrying that it makes them seem cheap. Overcome this cultural handicap and you could save thousands each year. Small businesses, in particular, tend to be open to negotiation, where buying in bulk or repeat business can open the door to good discounts.
8. Continuous Education
Review all applicable changes in the tax laws each year to ensure that all adjustments and deductions are maximized. Keep up with financial news and developments in the stock market and do not hesitate to adjust your investment portfolio accordingly. Knowledge is also the best defense against those who prey on unsophisticated investors to turn a quick buck.
9. Proper Maintenance
Taking good care of property makes everything from cars and lawnmowers to shoes and clothes last longer. As the cost of maintenance is a fraction of the cost of replacement, it’s an investment not to be missed.
Learn to know the difference between the things you want and the things you need.
10. Live Below Your Means
Mastering a frugal lifestyle by having a mindset of living life to the fullest with less is not so hard. Indeed, many wealthy individuals developed a habit of living below their means before rising to affluence.
This isn’t a challenge to adopt a minimalist lifestyle or a call to action to head to the dumpster with things you’ve hoarded over the years. Making small adjustments by distinguishing between the things you need and the things you want is a financially helpful habit to put into practice.
11. Get a Financial Advisor
Once you’ve gotten to a point where you’ve amassed a decent amount of wealth—be it liquid investments or tangible assets that aren’t as readily available to convert to cash—get a financial advisor to educate you and help make decisions.
12. Take Care of Your Health
The principle of proper maintenance also applies to the body. Invest in good health with regular visits to doctors and dentists, and follow health advice about any problems you encounter. Many problems can be helped—or even prevented—with lifestyle changes such as more exercise and a healthier diet. Some companies have limited sick days, making it a notable loss of income once those days are used up. Obesity and ailments make insurance premiums skyrocket, and poor health may force earlier retirement with lower monthly income.
The Bottom Line
These 12 steps won’t solve all of your money problems, but they will help you develop healthy habits that can get you on the path to financial freedom—whatever that means for you.