The financial independence movement encourages people to build long-term wealth. The goal is to have enough income to sufficiently cover living expenses without having to actively work for the rest of your life.
But financial independence doesn’t necessarily look the same for everyone.
For some, it may mean retiring long before the traditional retirement age. While others may envision tangible rewards, like having the freedom to buy their dream home or travel as they please without worrying about other financial obligations.
Here’s what you need to be financially independent, regardless of what your future path may look like.
An end goal
Your first step to financial freedom is to visualize what your end goal looks like.
For example, many people are now rejecting the notion that you have to work well into your 60s and 70s before retiring. Instead, they’re focusing on making sacrifices now in order to build wealth for early retirement.
You’ll need to realistically assess your current financial situation while keeping your big picture goal in mind. If you’re in your 20s, you’ll have more time to save, invest, and grow your wealth. Whereas, if you’re starting your journey to financial independence in your 50s, you may be more limited in terms of time and resources.
Once you have a clear vision for your future, you can then create a series of actionable steps that will get you where you want to go.
A detailed plan
Financial independence doesn’t just happen. You need a detailed plan that will keep you focused and motivated.
Set attainable goals for all the financial aspects of your life. These may include goals like:
- Increasing your income. This may require working extra shifts, asking for a raise or trying for a promotion.
- Diversifying your income. Explore various side hustles and different forms of passive income to boost your earnings.
- Living within your means. Create a budget that is specific to your lifestyle. And then stick to it.
- Cutting your expenses. You may be wasting more money than you know. Evaluate your monthly subscriptions and contact each of your service providers to lower your bills.
- Paying off consumer debt. Plan to pay down your debt using strategies like the debt snowball method or debt avalanche method.
- Building your savings. True financial independence relies on increasing your savings rate, so you can eventually live off your savings and investments.
Once you have a plan in place, you should periodically review it to make sure you’re on track. Or pivot if needed.
A commitment to financial freedom
The journey to financial freedom is a marathon, not a sprint. It takes time, focus, and commitment.
Your commitment may mean working long days or waking up several hours before your family does to work on your side business. Or it may mean having to alter your lifestyle to achieve more minimal living expenses. You may also be tested by needing to say “no” to friends and family in order to limit your spending.
All of these major changes will require discipline and sacrifice in exchange for long-term freedom.
A different mindset
Financial independence requires more than just a desire to build wealth. It calls for a complete mindset shift in order to be successful.
Assessing needs versus wants
Start by taking a deep look at what things in your life can be separated as a true necessity versus things that are used to fulfill a want.
Because we’re accustomed to living a life of comfort, it may help to view each item from the perspective of:
- Does it provide for a basic need?
- Does it align with my core values?
- Does it benefit someone else I care about?
- Can I live without it?
You’ll likely need to cut back on many of the wants in your life in order to cut back on expenses and begin reallocating your money toward savings and future financial goals.
Transitioning to a wealth mindset
You’ll need to change how you view money. Your goal can no longer be to spend each day working so you can earn money to pay your bills. This living paycheck to paycheck cycle won’t ever end unless you make a serious effort to change your mindset and actions.
Instead, you have to make your money work for you. This means contributing to tax-advantaged retirement accounts and building a diverse investment portfolio.
A wealth mindset will help you to make the most of the money you have.
Using passion as a driving force — instead of fear
When you’re living paycheck to paycheck or solely relying on your job for income, many of the choices you make can be out of fear. And this fear can spill over into your financial mindset.
What if I can’t survive without a paycheck? What if I run out of money?
This type of thinking can hold you back from putting the full force of your efforts toward achieving financial independence.
Instead, use your passions to drive your choices. This may mean choosing more fulfilling work that doesn’t pay as much or traveling the world with your partner. Or maybe it’s as simple as having the time and availability to spend more time with your loved ones.
Make your passions in life your priority — both in your present stage and as you progress into financial independence.
Financial independence takes time
Financial freedom takes more than a monetary investment. It requires patience and dedication.
Each person has to determine what their financial goals and priorities are. And then take action to achieve financial independence on their own timeline.