Smart Money Moves: How to Achieve Financial Independence

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Financial Independence

Achieving financial independence is one of the smartest money moves you can make in your lifetime. While many people think reaching financial independence can only take place after retirement, the savviest of us know that achieving financial independence can actually occur much sooner than the traditional retirement age.

Celebrities and athletes reach financial independence all the time, and so do CEOs for that matter. But could someone like you ever hope to reach financial independence without getting a huge windfall, like winning the lottery or getting an inheritance? Of course, you can!

Before you roll your eyes at me and insist that you don’t make that kind of money, just think back to all the things you never thought you could do—before you went out and did them.

The fact that you’re reading this article right now tells me that you’re smart and you want more out of life. And that’s really all you need to reach financial independence. It won’t happen by mistake, and it will take some time and effort, but achieving financial independence is well within your grasp. Trust me!

So let’s learn more about financial independence together, so you can feel even more confident in your abilities and reach it for the sake of you and your family.

Financial Independence Meaning

Financial independence means having enough money to cover your living expenses for the rest of your life without having to continue working. You’re considered financially independent when you can cover your expenses indefinitely with your savings, retirement accounts, or passive income.

What would your answer be if I asked you what your number one goal is when you go to work every day?

You might say that you need to pay your bills this month or that you’re working toward getting a promotion. Those are both decent answers, but I would argue that your ultimate goal behind working should be much larger than either of those two options.

Forget short-term goals. I’m talking about your big hairy audacious goal when it comes to money. A goal that you really have to strive for. A goal that requires your blood, sweat, and tears to accomplish.

With a cool name like that, a big hairy audacious goal can’t just be something that’s short-sighted or easy. It has to have some power behind it. And that’s why your answer for why you show up and work so hard every day must be that you’re on a slow and steady climb to reach the summit of financial independence. It would be such a shame if it wasn’t.

Doesn’t that sound amazing? It’s way cooler than putting up with traffic, long hours, and a jerk boss because you want to buy a new cell phone that you don’t really need. But you’re better than that. You’re hustling every day so you can bank enough money to walk away whenever you feel like it.

Automating your savings and paying yourself first, you nailed it. Creating an emergency fund, you nailed that too. Now you’re throwing cash at your FU fund so you can quit a toxic job and find one you actually like doing. Or maybe you’re paying down debt and refusing to take out more.

Whatever stage you happen to be in, just by having a financial independence plan, you’re way ahead of most people.

In fact, most of the people you know have no idea what financial independence even means. Most of the people you know make impulse purchases all the time that really add up. Most of the people you know take out a ton of debt so they can always have the next bigger, better product. And those same people you know think they’ll never get ahead because the rich get richer and they weren’t born rich.

But you’re smarter than most people. You know the meaning of financial independence, you know that it’ll take hard work and dedication but that you’re capable of reaching it, and you know that making excuses will never help you achieve your financial goals.

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Financial Independence Number

Before you start taking action toward becoming financially independent, it’s important to calculate your financial independence number. Your financial independence number, or FIN, is the total amount of money you need to cover all of your expenses forever without having to go back to work.

Everyone’s financial independence number will be different. This is not a one-size-fits-all kind of calculation. To determine yours, you’ll need to do the following:

1. Calculate your annual expenses
2. Apply the 4% rule
3. Make adjustments based on your risk tolerance
4. Take inflation into account
5. Estimate other factors, like healthcare and taxes
6. Decide if part-time work is an option or a goal

Once you’re honest with yourself and tackle this calculation to the best of your ability, you now have your FIN—making it much easier to figure out how much you’ll have to save and invest to reach financial independence and for how long.

It’s really that simple. What are you waiting for? Let’s talk about how you can actually do this now.

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How to Achieve Financial Independence

The best way to achieve financial independence is to spend less than you make, create multiple streams of passive income, and automate your savings and investments. By living frugally, increasing your income, and paying yourself first, you take advantage of both time and compound interest.

Wait, are you saying that I can’t spend all of my money if I want to be financially independent someday? Yes! Of course, I’m saying that.

Should I find several ways to make money outside of my employer? And should I save and invest every month? Yes and yes!

If you want to achieve financial independence, you have to understand that it won’t just happen magically. You actually have to make your money work for you.

Here are the 15 pivotal steps you must take in order to reach financial independence:

1. Create a Financial Independence Plan

In order to create a financial independence plan, you’ll need to determine what you want your lifestyle to look like after you reach financial independence and what steps it will take to get you there. Do you want to live in the same house and spend your days doing crossword puzzles? Or do you want to travel the world and live life like one big adventure? Knowing what you want out of life after retirement will help determine what your financial independence plan looks like.

2. Find an Accountability Partner

Having a good support system is key when it comes to smashing your goals. Find a financial accountability partner who can help you stay focused and cheer you on along the way.

3. Take Control of Your Money

If you want to reach financial independence, you must take control of your money. You need to know exactly how much money you have coming in, make a reasonable budget that you can stick to, and tell every single dollar how it can serve you.

4. Automate Savings and Investments

You’ll never reach financial independence if saving or investing is an afterthought. Set up automatic transfers to your savings and investment accounts so you don’t forget to save completely or only save whatever is leftover at the end of each month.

5. Eliminate Unnecessary Expenses

Unless you’ve been a frugality-loving miser since birth, you’re sure to have unnecessary expenses taking a chunk out of your paycheck each month. The more fat you trim now the quicker you’ll reach your goal of becoming financially independent.

6. Pay Off Your Debt

Nothing will squash your financial dreams faster than drowning in large amounts of debt. So pay extra towards the principal of your loans, save a ton of money on interest, and meet your financial goals earlier.

7. Gain Marketable Skills

Throughout your life, you should continue to gain marketable skills that you can then leverage to find a new job, get a promotion, or increase your income.

8. Make Education a Priority

Your education should never end just because you left the classroom. One of the most common habits among people who are wealthy is that they always continue to learn. So make continued education a priority and learn anything you can about personal finance topics so that you can reach your goals.

9. Create Multiple Streams of Income

Any time you rely on one form of income, you’re putting your financial goals at risk. Work towards creating multiple streams of income such as side hustles, rental income, royalties, or dividend income.

10. Insure Against Risk

It’s incredibly important that you properly insure yourself against risk. Don’t lose everything you worked so hard for because you get into a car accident, have a medical emergency, or someone gets hurt on your property.

11. Diversify Your Investments

Whether you prefer to invest in low-cost index funds, build a dividend portfolio, or invest in real estate, it’s always a good idea to make sure your investments are diversified.

12. Reduce Your Taxable Income

Don’t lose a big chunk of your hard-earned income each and every year to taxes. Reduce your taxable income whenever possible by maxing out pre-tax retirement and health savings accounts, taking the appropriate tax deductions, and donating to charity.

13. Take Advantage of Compound Interest

Compound interest is awesome when it’s working in your favor. Invest early and often and watch your money grow exponentially thanks to compound interest.

14. Celebrate Small Wins

If you want to reach financial independence, you have to be willing to play the long game. But you should also set small attainable goals and celebrate your wins along the way. It will help you stay motivated. Plus, it’s just fun.

15. Don’t Care What Others Think

Most of the people you know aren’t staying focused on reaching financial independence like you are. You may face questions, disbelief, and judgment along the way. So if you want to become financially independent you’ll have to stop spending frivolously like they do, and you’ll also have to stop caring what they think.

Financial Independence on a Low-Income

In order to achieve financial independence on a low income, you need to be very intentional with your money by setting a budget, eliminating unnecessary expenses, and automating savings and investments. Achieving financial independence on a low income will take time, but it can be done.

Remember, if you have a low income, you may be tempted to think that it’s way easier for everyone else to reach financial independence because they make more money than you do. But that’s not necessarily true. Other people may have higher incomes than you, but they may also have higher expenses, higher debt, and less motivation.

So it’s time to let go of excuses and instead focus on what you can do to reach your financial goals.

After several cross-country moves, seven years out of the workforce as a stay-at-home mom, two divorces, being a single parent to two kids, and never making close to six figures, I can assure you that reaching financial independence can be done.

I’m chugging along and watching my net worth grow year after year despite having several huge setbacks. You can do this no matter what your income is today and no matter how far you feel behind.

Remember, you’re smarter than most of the people you know. They’re sitting around doing nothing while you’re reading life-changing blog posts and developing your personal financial plan.

And when you reach the summit of financial independence, you can look at everyone around you, smile, and proudly say “Nailed it!”

FAQs

1. How do I become financially independent?

While there are many strategies to become financially independent, the most straightforward way for you to become financially independent is to live below your means, automate your savings and investments, and create as many streams of passive income as possible.

2. How much money do I need to be financially independent?

The amount of money you need to become financially independent will depend largely on your personal spending habits. The less you need to live comfortably, the sooner your savings and investments will cover these expenses and allow you to stop working if you so choose.

3. Is it good to be financially independent?

Achieving financial independence is good because it removes a huge burden from your life and allows you to live any way you choose. Whether you want to quit working entirely, work part-time, leave a toxic relationship, relocate, and travel the world, financial independence gives you the power to decide how best to live your life.

Sources

• Association For Financial Counseling & Planning Education: The Power of Accountability
• New York Life: The 4% Rule for Retirement
• The Aspen Institute: Consumer Debt: A Primer

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What can you do today to start working towards financial independence? Share your thoughts in the comments section below.