What does financial independence mean to you?
In the old days, no one thought as much about financial independence as today. People are more educated about money than ever before. This change has occurred, in part, to the transparency laws surrounding the financial industry.
People also view financial independence in various ways, and for some, it might mean being free of debt. For others, it might be walking away from a paid job, and for a few, it might mean being able to live off accumulated funds.
But then, do you know how to become financially independent?
The Golden Handshake is No Longer
There is also the understanding that there is not much in company loyalty anymore. The golden handshake is all but gone, and people make other arrangements regarding their finances to pay for a lengthy retirement.
Many people of all ages earn a lot of money, but they spend it instead of using some of the wiser old proper, tested methods of saving and investing.
Financial Independence is a Slow-Growth Scenario
Financial independence is a set of smaller goals that create a larger picture, and true financial independence takes time. It never happens overnight unless you win the Lotto! The timeline will depend upon various things, like where you invest your money, how much you earn, and the inflation rate.
Simplistically, you want to calculate how long it is until you retire in years and how long you think you will be alive after that. Luckily, financial advisors have calculators that will instantly whip up this figure, but it is more complicated.
Here are some surefire ways to get to your goal, that will take time but will help improve your life. Everyone has to start somewhere, and beginning now and learning how to become financially independent is better than not starting.
Start to Set Goals
These goals will include your shorter-term or smaller goals. Do you want to have emergency savings? Do you wish to pay off debt, and do you want to save money along the way by handling your finances effectively? Be very specific. To total up your debt, check the interest rates on your outstanding balance to understand how you could be throwing money away on interest.
Also learn: Why Is It Important To Set Realistic Goals? [Explained In Detail]
Get real figures. These can set time limits and dates. The goal should be achievable. If paying off all of your debt seems impossible, then be realistic. You can pay these off as quickly as you can. Others might have to wait. Your home is an asset, but the longer you take to pay off your home, the more you will pay. You can shorten the date by paying before interest or paying a little more to offset interest.
Plan Your Budget
It might sound boring and cliche, but working with a budget is an eye-opener. Many people realize how much money they waste when they do not have a strict budget. A budget can help you keep on track and see where you could be overspending.
You can play around with your budget and free up some silly money for each month. That means putting aside a part of your income to blow on fun items that you do not need. Having spare cash for fun things enables you to live a fun life still while working towards your goals and overcoming challenges.
Having a workable budget is a great stress reliever, too, as you know that the essential things in your life are covered. The exciting part is when you start to see fundamental changes in your life and free up money that you did not have before. It is also essential to living for today as well! So silly cash allows you to live in the present. Budgeting can help you organize your life and become financially free.
Learn more about budgeting here: Top 3 Ways On How To Save Money At Home? [Supreme Guide]
Pay Your Bills On Time
If you have bills, make sure you pay them on time. Better yet, pay them early. Companies often add on interest for delayed payments, so you pay more. Don’t stress if you haven’t done this before; the right time to start is now.
Some larger bills are necessary, and perhaps you did not have the funds upfront; that is fine, but making the payments on time will ensure that you are not charged double for that item. Many companies offer interest-free loans. The loan is interest-free if you pay it within the specified time only.
Any debt that charges you interest over and above that, like credit cards, should be paid in full whenever possible, not to accrue interest.
Pay Yourself First
That means taking a portion of your income off your earnings as soon as you earn it and saving. Most people find an automatic fund can help with this. Automatic saving means that funds put aside, especially for protection, can be moved into a saving vehicle that suits that purpose on a specific date, which is more than likely to be payday. This way, you do not miss the money, and it is incredible how smaller amounts add up over time.
You can choose a specific amount or take a percentage of your earnings. A good example would be 10% of your net salary.
It might pay to split the decided percentage into two placings, some money in an access fund for emergency use only and another to achieve a midterm goal.
Don’t Put All of Your Eggs in One Basket
Be wary of advice when it comes to investing. Some might tell you to play the stock market; some will swear in the slow growth of blue-chip shares. Others will preach about penny stock. The best investments are diversified investments, but what does that mean?
A perfect portfolio is a little bulletproof. Some money in slower-growing assets, like your home, or property, other money placed in aggressive portfolios via the stock market, shorter-term cash savings with good returns and midterm investment policies, not forgetting your retirement funding.
Property markets fluctuate, but most people understand they are in it for the long haul, and property can sustain its value over time. When a property is down, perhaps your chosen stocks are up, which makes up for the losses. You can do this yourself by learning about finance or going into investment vehicles that do this for you by algorithms.
Your funds would be moved around by your age and financial independence date.
Learn About the Beauty of Compound Interest
Compound interest in saving is invaluable. Compound interest is where your starter sum grows, and as it grows, interest is paid on the growth amount each month or quarter. In contrast, other saving vehicles will pay interest only on the amount you started saving. Compound interest is one of the most effective ways of protecting and growing money.
This is money for doing nothing as the policy will pay the interest on growth earned. Conversely, debt can work the same way; companies will charge you interest on your accrued interest for not paying your bills on time.
Live Below Your Means
It might seem flashier to drive a better car, and it might seem more trendy to spend right now, but actual millionaires live well below their means. That means drawing a salary from your earnings. If it is possible, decide each month that you will take a portion of your paycheck to live on, the rest goes to investments. This action works particularly well when you experience windfalls or extra cash. Many commission earners do this to ensure that they have additional funds available in the bank for slower months.
It can often be more about money management than the money you earn.
It is far more trendy to live below your means than to live above them. People living above them are often eroding the possibility of financial independence by having credit chew away at the goal.
Become a Good Negotiator
You might not feel confident in negotiating a price for a product, but many services and small companies are open to negotiating, particularly for cash. If negotiation is not your thing, then start to buy in bulk. Buying in bulk is savvy if you use the items a lot. If you buy toilet paper today, you might miss inflation increases in the next few months.
Understand the Importance of an Emergency Fund
If you have some money set aside for emergencies, the payback can be huge. All households have financial shocks, and these shocks can bleed into other areas of income, taking months to recover.
Emergency car or home repairs can cost a lot, and even if you have a part payment towards that, it can reduce the impact of such a situation.
People say they always sleep better when they have an emergency fund available.
Become Personal Income Tax Savvy
You might be a higher earner, and if you are, you should be searching for ways to avoid paying too much tax each month. That does not mean evading tax which is a criminal offense. Instead, tax avoidance can set you up in good financial stead in times of trouble and free up more income each month.
An example:
Let’s say your tax margin liability is around 30%. Each month, you owe the taxman 30% of your salary. You can drop that liability amount by taking out specific cover. If you signed up for an income protection plan as an example, this figure would reduce your tax liability each month. Plus, you would have protected your income in the event of your not being able to work for a while.
Part of sound financial planning is taking care of any possibility. As they say, the only thing in life you can be sure of is tax, death, and the economic costs of living too long.
Maximize Your Income
Perhaps you have a paying job that you work at each month. You might find that you can create income flows from other sources and this job.
There are possibilities to earn money everywhere and in different ways. Running a sideline business that does not require a lot of your time can reap dividends. You can do this over weekends or in the evening. Start searching for ways to do this that best suits you.
You can also get more income from passive income-generating jobs. There are many ways to do this. Not so long ago, people created YouTube channels and drew small payments from them monthly without doing much. Other forms of passive income can include renting a home out or a garden cottage.
Finding other easy ways to earn income, like dog-walking, selling things that you no longer need, and offering services that you are good at, can bring in extra income.
Washing cars, cutting grass, and cleaning windows do not require much skill, and many people use these types of services regularly.
Check That You are Covered
You may have a family that depends on you, and you have to think about what would happen if you couldn’t work anymore. Find out about different types of cover available to your family if you should die or cover for yourself and your family if you become critically ill. All the best plans can fall out of the window if you have not prepared. Nothing will erode funds like these events if you haven’t thought about them in advance.
Keep Up to Date
If you are determined to learn how to become financially independent, keep up to date with financial news. Financial news includes the latest fiscal laws and benefits released by the government each year. Knowledge helps you to max out on the benefits they are offering. If you are saving for retirement, the government will also reduce your tax liability which is a massive saving for you each year. As they say, knowledge is power. If you do seek out the advice of a financial advisor, check what their specialty is and that they have registered with the financial services board.
Save and Save Some More
Saving includes cutting costs where you can. It might be cheaper to cycle to work or walk than to catch a train. You can manage on a budget car instead of a dream car, grocery shop with cost-cutting ideas in mind, and keep searching service outlets for better prices.
Some families like to cut their hair, grow their vegetables or update old furniture instead of buying new furniture. You will find your hidden talents for saving money.
You might have to start gradually when you begin your plan, but all of these actions add up. Please don’t overdo it; make sure your changes are sustainable over time and set your priorities. Small changes have a massive impact, like eating out once a week instead of twice or packing lunches for work most days.
A sense of self-satisfaction and peace comes with being in control of your money that money cannot buy! Remember that this is a process, it does have a goal, but it has a beginning, a middle, and an end, a little like investing! Learning how to become financially independent takes time, but it’s something undoubtedly worth doing.
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