Enjoying financial independence can completely change your life. With adequate personal wealth to cover your living expenses, there is more time to spend with your family and you can focus on the things that make you happy. But achieving financial independence is easier said than done. This is a personal goal for most financially savvy people. Yet, many people don’t fully understand the steps involved. And with so many personal obligations, financial independence may seem like an unrealistic dream.
You don’t have to be super wealthy to enjoy this type of life. Assess how you’re currently spending and managing your money, and then modify your financial habits.
1. Pay off debt. You can’t achieve financial freedom if you’re a slave to debt. Debt payments can take a large percentage of your income each month and leave little cash for extras, such as vacations, home improvements and savings. Write down all your debts and devise a plan to pay off balances. This not only includes your credit cards, but also your home loan and auto loan.
For example, you might pay more toward your auto loan each month to reduce your term by one or two years. Once the vehicle is paid off, fight the urge to purchase another car. And with regards to your home loan, you can refinance through lenders and switch to a shorter mortgage term. Likewise, you can make higher payments on your credit cards each month, or use money from a tax refund to remedy these balances.
2. Lower your monthly living expenses. Eliminating debt is only one aspect of achieving financial independence. Living smart and spending your money wisely is a huge contributing factor. For an entire month, track how you spend your paycheck. How often do you dine out? Do you buy clothes often? How many vacations and getaways do you take each year? Although you may spread out these expenses, too much of anything reduces how much you’re able to save. Be moderate and scale back in various areas.
Think of practical ways to save money on groceries, utilities, transportation and other costs. Carpool to work, use public transportation, clip coupons and reduce energy consumption. The more you save, the faster you can grow your personal wealth.
3. Explore different investment options. Paying off debt and reducing your living expenses frees up cash for saving. And once you’re able to save, you’re a step closer to financial independence. Consider various savings options available to you. Think beyond your traditional savings account with your bank. It is smart to keep some cash liquid for emergencies, but you should maintain other types of accounts as well.
For example, you can start an individual retirement account, maximize your savings with an online high-yield savings account or money market account, or deposit your cash in a CD. These accounts have higher rates than your standard savings account, which grows your money quicker.
Financial independence isn’t something you achieve in a few weeks or months. It takes years to reach this point, and unfortunately, many people give up before they hit their goal. But if you keep this long-term goal in mind, and diligently save each month, you can build your personal wealth.