Financial independence is important because it reduces your financial stress and removes your worry about whether you can pay your living expenses or that you’ll have enough saved and invested to live on for the remainder of your life.
It also gives you more freedom to choose what you do in your life. No longer are you relying on a paycheck nor are you dependent on others to ensure you generate income. Since you are financially independent, you have enough money invested to generate passive income that you can withdrawal as salary.
1. Spend Less, Earn More
Minimize your expenses. This includes living in a more affordable area and home, reducing your car expenses or number of cars you own, cut back on shopping sprees, save on groceries, etc.
Earn more. This is not always easy compared to cutting expenses (which can be challenging too). Don’t get lazy in your job, learn more to maximize your career worth, ask for raises, negotiate salaries, monitor your career trajectory. Don’t expect your company to always recognize your value or worth (it’s unfortunate, but true a lot of times). But be heard, don’t be afraid to prove your value.
2. Master Self-Control
Self-control is one of the toughest aspects of life to master, but it is also so crucial for achieving financial independence too. Without it, you may find your spending and your consumer debt start to balloon.
You might also make poor investment choices when the economy is signaling a downturn, which cost you money and years off your financial goals. Mastering self-control can be REALLY CHALLENGING. But, if you continue to build good habits and self-discipline, you won’t even have to think about it anymore.
3. Maximize Your Savings Rate
The average savings rate in America is pretty bad, most save less than 5% of their income. While the stagnant wage argument might be stale, it’s still a valid reason it’s hard for people to save money. But, I think it mostly comes down to how much you prioritize your savings.
Calculate what you can afford to save and pay yourself first when you get paid. Most people pay bills and spend first, which then leaves very little for saving. I see money experts talk about various saving rate ranges like 10%, 15%, up to 25%. But none of those are enough.
4. Put Your Money to Work
Saving money is one thing, but to truly achieve financial independence, you have to be willing to put that money to work. Your goal should be to have your money, generate more money while you sleep.
For example, investing in the stock market for the long-haul, allowing compound interest to go to work for you. This also doesn’t have to be just the stock market. You can invest in real estate rental properties, flipping homes, or investing in real estate crowdfunding for diversification.
5. Utilize A Simple Budget (And Stick To It)
I would recommend you budget to track things like housing costs, food costs, and transportation. These are the most common — and usually the most — expensive parts of your life.
But visually seeing these numbers, cutting the costs, and optimizing them, you can really push your FI trajectory exponentially. The key is, you need to stick to your plans for the long-term.
6. Side Hustle And Invest
Another way to get ahead in the earn more section, is start a side hustle and invest or save that income. This extra cash can increase your savings rate and help you achieve financial independence much quicker.
Pending on what your side hustle is, you may also have yourself a future financial asset that can be sold for a nice sum of cash. Many times it’s good to invest some of that money back into your side hustle in order to fuel growth, but at some point, it will be good to start investing that money into your own finances.
7. Grow Your Personal Finance Knowledge Bank
If achieving financial independence is a priority, you need to expand your personal finance knowledge bank (aka your brain). When you are learning and reading about finance or investing, you’re molding your mind to think strategically with your money.
8. Avoid Future Consumer Debt
One thing that will slow your financial independence goals, is consumer debt. Between interest on the debt and trying to catch up on payments, it can knock your net worth and investing returns down.
Consumption, of course, can be good for the overall economy and it is okay to treat yourself, but you shouldn’t go into debt just to fulfill instant gratification. Breaking the consumer mentality and ignoring what others have, will keep your debt down in the long run.
9. Adopt a Somewhat Frugal Mindset
It is important to not go out to eat every day or buy something every time just because you want it. But practice some basic frugal living tips. I also like to call this the “Millionaire Next Door Mindset” based on the book The Millionaire Next Door. Think of things like: not updating your lifestyle lavishly as you make more money, don’t let expenses creep up, live below your means, etc.