What is Financial Independence?
Everyone wants to be financially independent, but some people don’t know what it actually means. Definition of Financial independence varies from one person to another. Generally, it is defined as an ability to establish a stream of income to pay the bills etc. without having to work for the rest of your life.
Financial independence Retire Early also referred as FIRE is a goal of many people today. In fact, people are looking to reach FIRE in their 30s so that they can relax and enjoy the rest of their life. If you are wondering if FIRE is possible in your 30s, then the answer is yes. It is possible and not as complicated as you may think.
In fact you can easily reach FIRE if you follow the following 4 steps. Let’s get started:
Step 1 – Take Charge of Your Money
First and foremost, you need to take control of your money. Doing it is quite simple. Focus on spending less than what you really earn. Monitor your monthly expenses so that you don’t end up paying more money for what is really needed.
You can also set up a budget or allocate some money for all the basic life necessities. This works out for many people but to achieve financial independence, you need to do a bit more. Save as much money as you can easily.
Let’s talk about debt. Every month it costs you money. You can’t achieve financial independence if you’re being held back by debt.
In case of a debt, try to pay 30% amount off debt and 20% for the necessary expenses. This may take a few weeks and even months to track the patterns but would be beneficial in the long run.
Limit your credit card spendings till you are able to avoid it completely. Get rid of all the debts as quickly as possible to achieve FIRE.
Step 2 – Cut the Fat to achieve financial independence
The first step will help you analyse where most of your money is going. The next step is to slice out the fat. Remember that no one becomes rich by spending all their income. There are some sacrifices and bitter steps that you need to take. You have to limit the spendings in order to save it. Sooner than later, you will be able to save a good amount of money.
To trim the fat, consider focusing on one category a week. For example, you can start with food. It is one key area where most of us overspend. Start bringing your own lunch to work in order to cut down on your munching habits. You will be able to save a decent amount of money each week, which would motivate you to cut your living expenses further.
Step 3 Increase Your Income
There comes a saturation point of cutting the fat which means that you don’t have anymore extras or basic necessities to cut down. To achieve FIRE, you need to be productive and increase your monthly income. For getting started, you can ask for a raise at your workplace. Search for people working in the same position as yours and learn about how much they are making on Glassdoor. This will help you to ask for the amount that you are worthy of. Also, share all the reasons why you deserve a raise.
If you are unable to get an increment, start looking for another job. In fact switching a job is a better option as this way you would be able to increase your income by 15-20% on average. Moreover, you can also cut down on television time and utilise it in some side hustles to make extra money. This would definitely help you towards your journey to financial independence.
There are different side hustles such as driving for Uber, freelancing on sites such as Upwork, Fiverr etc. Everyone needs money, but this is a must for those who want to become financially independent.
Step 4 Increase Your Rate of Savings
There are many ways to invest and build your nest egg; opening retirement accounts like a Roth IRA or 401k, investing in the stock market, mutual funds, index funds, rental properties – the list goes on.
There comes a point when you don’t have any more hours left to use for making more money. You already have a regular job and an additional income stream. So how do you multiply your earnings and savings. Well, there is a method known as passive income, which doesn’t need more time. It is one of the best ways of increasing income. You just have to invest once and that too without requiring a huge amount of money. Investment methods include launching a course for teaching online on platforms such as Udemy, teachable etc, developing a mobile app and monetizing it, or dropshipping. We will cover more on passive income in upcoming blog posts.
Step 5: Using Automated Tools & Advanced Investing Methods
You can also use automated tools such as Betterment or Personal Capital which helps to track your long term financial strategy, set a budget, and plan for retirement. You can also invest more in advanced investing techniques such as retirement accounts. Another step is to legally avoid taxes.
These strategies would help you achieve financial freedom. There would be times when you would want to give it all up, but when you feel that way, start imagining what it would be like when you finally get there.