• Career & Money

10 Expert Tips to Help You Reach Financial Independence

5 min

When it comes to creating financial goals, achieving financial independence is the ultimate dream. And many people don’t want to wait until they retire to reach financial freedom.

When you’re financially independent, you no longer have to work to afford your lifestyle. This is a very attractive concept, but getting there isn’t easy. This article will outline 10 steps you can take to reach financial independence.

What is financial independence?

The exact definition of financial independence will look a bit differently for everyone. But it generally means that your savings, investments, and other income streams can support your desired lifestyle.

When you’re financially independent, you don’t have to rely on a full-time job to pay your bills. Instead, work becomes optional and something you can do because you want to.

For instance, the financial independence, retire early (FIRE) movement has gained traction in recent years. The FIRE movement focuses on achieving financial freedom early in life so you can live on your own terms.  

10 steps to achieve financial independence

Before you can achieve financial independence, you need to take the time to determine what this looks like for you. Here are 10 steps to help you achieve financial independence:

1. Take an inventory of where you’re at

Before you can start moving in the direction you want to go, you need to understand where you’re starting from. And for many people, this is one of the hardest parts of achieving financial independence.

It’s hard to confront high-interest credit card debt or acknowledge that you’re not saving enough to retire comfortably. But it’s a crucial first step toward creating the life you want.

To get started, you need to look at your outstanding debt, your savings, and any sources of income you have. Your outstanding debt includes things like:

  • Your mortgage

  • Student loan debt

  • Credit card debt

  • Auto loans

  • Money you owe friends or family

You also need to look at your current net worth, which includes any savings, investments, or stocks you own. If you have any equity in your home, that will count toward your net worth as well.

And finally, you need to look at your various sources of income. For many people, this will be the money they earn from their full-time job. And if you have any side hustles or investment properties that make money, you can include those as well.

2. Write down your financial goals

The next step is to come up with your financial goals, and there are two reasons you should do this. The most obvious reason is that you need to come up with a plan for how you’ll reach financial independence.

But the more nuanced reason is that you need to understand why you want to achieve financial independence. Without a strong why, it’s going to be hard to find the motivation to make the necessary changes in your life.

Do you want to achieve financial independence so you can quit your job or spend more time with your family? Or do you want to pay off your student loan debt and have more options?

Once you come up with some tangible goals backed by a strong emotional connection, you can begin taking steps toward achieving them.

3. Begin tracking your spending

Many people have no idea where their money is going every month. Their paycheck is deposited twice a month, and the money seems to fly out of their account faster than it came in.

That’s why it’s so important to start tracking your spending. When you do this, you’ll begin to understand where your money is going every month and why it’s hard for you to save or pay down debt aggressively.

Start by looking at your account statements and grouping your transactions. When you do this, you’ll likely start to notice patterns. For instance, you may see that you eat out more often than you should or that you have a habit of impulse shopping.

4. Come up with a budget

Once you understand where your money is going, you can gain some leverage over it. And now, you can intentionally decide where you want your money to go.

You’ll do this by coming up with a monthly budget. I recommend coming up with a zero-sum budget, which is where every dollar is assigned a “job.” However, if this is too strict for you, there are other methods you can try.

A budget ensures that you can pay your bills and that you’re meeting your savings goals. It will also help you avoid the urge to spend money impulsively. You can use a free tool like Mint to create a budget and track your spending every month.

5. Prioritize paying down debt

Before you can begin focusing on saving and investing your money, you need to pay down your debt first. In particular, you should prioritize paying off high-interest credit card debt.

Once your debt is paid off, you’ll free up more money to save and invest. And most people feel immense relief once they’re finally rid of their debt.

You can take two approaches to pay off your debt: the debt snowball method or the debt avalanche. With the debt snowball method, you’ll pay off your debt from smallest to largest.

In comparison, the debt avalanche method focuses on paying down the debt with the highest interest rate first, regardless of which loan is the smallest.

6. Automate your savings

It’s only a matter of when -- not if -- a financial emergency arises. Cars break down, family members get sick, and you need a way to cover these emergencies without relying on credit cards.

Plus, you may want to splurge on Christmas gifts or take your kids to Disney World in a few years. Creating a habit of saving ensures you have the money to cover the expenses you need and want.

The easiest way to get in the habit of saving your money is by automating it. Decide how much you plan to save every month, and have the funds transferred out of your account before you even see it.

That way, you’re paying yourself first and avoiding the temptation to spend the money on something else.

7. Plan for the unexpected

In addition to saving an emergency fund, you need to ensure you have the right insurance to protect you if a financial emergency arises. For instance, what would you do if you were suddenly laid off from your job?

Or what if you were unable to work due to a disability? A $10,000 emergency fund will only last you so long in this instance.

The reality is, you’re 3.5 times more likely to need income insurance than life insurance. That’s why Asteya provides affordable income insurance that is customizable and easy to apply for.     

8. Start investing now

The best way to take control of your financial future is by investing your money. When you invest, you can take advantage of compound interest, which increases your earnings dramatically.

The critical part of investing is to start as early as possible. By starting early, you’re giving your money time to grow.

Don’t overthink this step -- you can start by opening an online brokerage account and setting up a portfolio. If you need professional help in this area, you might consider working with an experienced financial planner.

9. Look for ways to increase your income

A lot of the financial advice you’ll hear will stress the importance of cutting your expenses and living below your means. And that is a crucial step, but frugality will only get you so far.

At the end of the day, there’s only so much you can cut from your budget. And if you overdo it, you may feel overwhelmed and contemplate giving up altogether.

That’s why you also need to start thinking about ways to increase your monthly income. This idea can feel overwhelming for many people, so I recommend starting to look for opportunities to earn more in your current job.

Once you feel like you’re maxed out in your current job, you can begin thinking about additional sources of income. This could be something small like driving Uber on the weekends or picking up DoorDash orders for an hour after work. 

Over time, you can begin looking for opportunities to earn passive income. The point is to start small and build up your income over time.

10. Focus on the long game

In the book Atomic Habits, James Clear says, “The greatest threat to success is not failure but boredom.” And this is definitely true for your financial journey.

Creating a budget, paying down debt, and saving money isn’t easy, which is why most people don’t prioritize it. And it’s easy to give up if you don’t see immediate results.

And the reality is, your financial independence journey will not happen overnight. It could take you years to start seeing significant progress, and it may take decades to actually achieve.

That’s why it’s so important to focus on the long game. Be patient and keep taking small, consistent steps forward. In the beginning, you may not see much of a difference, but over time, you’ll begin to see that your efforts are paying off.

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