What is Financial Independence?
Financial independence may look different for everyone
There are several ways people may become financially independent, and how people define financial independence will often change depending on their life stage.
Financial independence can be a young adult who moves out of their parents' home. Financial independence can also be someone who retires early and can live off passive income with the flexibility to work for a lower salary or not at all.
Most people, however, define financial independence as “no longer needing to receive money from family and friends.”
Why Everyone Should Strive to Become Financially Independent
Whether you’re planning to retire early or not, striving to become financially independent means having complete freedom over your lifestyle. It means working (or not working) on your own terms, pursuing your passions, spending as much time as you want with the people you want.
This kind of freedom, while it can be scary, means truly living the way you want to. Who wouldn’t want that?
10 Steps to Become Financially Independent
If you ask most people what their financial goals are, they will likely say something along the lines of “financial independence.”
But how do you actually get there? Is it even possible?
While the path to financial independence can be challenging—and how you define financial independence may be unique—it is perfectly attainable with careful planning, discipline, and commitment. Next, we’ll outline ten steps to use as a roadmap to become financially independent.
Step 1: Understand Your Financial Goals
Before you can become financially independent, you need to understand how you define financial independence and what it looks like for your lifestyle. This way, you can set clear and achievable financial goals.
Consider the lifestyle you want, including your preferred retirement age and desired income. Be specific and realistic about your goals, as they will serve as your motivation and guide throughout your financial journey.
Step 2: Create a Budget
To become financially independent, you need to fix your relationship with your finances and take control of every aspect of your financial life. In other words, you need a budget.
Create a detailed budget that outlines your income, expenses, and savings goals. Analyze your spending habits and identify areas where you can cut back to increase your savings rate.
Without a doubt, you’ll need to continuously revisit and revise your budget as your circumstances change. But be sure to keep your end goals—all of the things that make up how you define financial independence—in mind as you do so, and stick to the budget you set.
Step 3: Build an Emergency Fund
Before focusing on investments and wealth-building, it's essential to have a safety net. An emergency fund (ideally, the equivalent of 3-6 months of living expenses) can help protect you from unexpected financial setbacks, such as medical bills, car repairs, or job loss.
Having an emergency fund is essential to minimizing the impact of unexpected challenges, allowing you to stay on track with your financial goals.
Step 4: Make A Plan to Pay Off Your Debt
Debt can be a significant roadblock as you strive to become financially independent. Prioritize paying off high-interest debts, such as credit card balances and personal loans. As you eliminate debt, you'll free up more of your income for savings and investments.
Step 5: Invest Wisely
Investing is a critical aspect of building the wealth you need to become financially independent. While your investment needs will be unique, there are a few investment strategies that apply to most people, like diversifying your portfolio.
Consider consulting a financial professional to ensure your investments align with your goals and risk tolerance.
Step 6: Take Opportunities to Increase Your Income
Finding ways to increase your income can help you accelerate how quickly you become financially independent. This can be achieved through a variety of means, like pursuing higher-paying job opportunities, starting a side business, or investing in your education and skills.
Increasing your income can enable you to pay off debt, save, and invest more aggressively.
Step 7: Automate Your Savings
Automating your savings is an effective way to ensure you consistently contribute to your investment accounts and retirement funds. Set up automatic transfers from your checking account to your savings and investment accounts, making it a routine part of your financial life.
Step 8: Stay Disciplined
Staying disciplined and patient is crucial as you strive to become financially independent. There will be times when the market fluctuates or you face unexpected expenses, but it's important to stay the course.
Trust in your financial plan and make adjustments as needed to keep progressing toward your goals.
Step 9: Monitor Your Progress
Regularly revisit your financial goals and track your progress toward them. This will help you stay motivated and can help you make any necessary adjustments to your plan and strategy. Consider using financial tracking tools and software to stay organized and informed about your financial status and progress.
Step 10: Seek Financial Education
Investing in your education in the areas of personal finance and investment strategies can be a great supplement to a thorough financial plan.
Read books, take courses, and rely on trusted sources to stay informed about the latest trends in finance and investing. Knowledge can empower you to make informed decisions as you become financially independent.
Essential Support to Help You Become Financially Independent: Fiduciary Financial Guidance
A fiduciary is someone who manages money or property for someone else. More than that, a fiduciary is legally required to manage those assets in the best interests of their client, not themselves.
Fiduciaries have four basic duties:
- Act only in the client’s best interest.
- Manage their money and property carefully.
- Keep their money and property separate from your own or someone else's.
- Keep true and complete records.
When striving to become financially independent, having a fiduciary working with your finances can provide much-needed benefits and will help you pursue the lifestyle you define as financial independence.
How Do You Become Financially Independent? Work With A Financial Professional
One of the most effective ways to create a plan that can help you define financial independence and become financially independent is to work with a financial professional who can create and carry out your plan. Their job is to help you make informed decisions rooted in your personal goals and aspirations. A right-fit financial professional will also put your best interests first, no matter what.
At Totus Wealth Management, we focus on the totality of your financial landscape to get a more comprehensive idea of how to get you to a place of financial independence. We offer:
Customized guidance based on your financial picture
As independent advisors, we’re not obligated to sell specific products or services, giving us the freedom to choose the solutions that work best for you.
A responsive, attentive, and personal relationship
To offer advice that is closely aligned with your goals, we first build a strong understanding of you, your goals, how you define financial independence and your situation. We hold ourselves personally accountable to you.
High-level expertise to support your complex financial needs
We can help you address the complex investment needs that arise when you accumulate significant wealth. From investment strategies to estate planning, we have your back.
Do you want to become financially independent? Contact our office today.
A diversified portfolio does not assure a profit or protect against loss in a declining market.