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Tips for achieving financial independence

Many of us aspire for financial independence but may not know where to start. Whether you’re navigating the ups and downs of the job market, dealing with debt or simply striving to sustain a solid savings cushion, financial independence might seem like a lofty goal. But with the right tools and some strategic steps — and maybe some outside help — achieving financial independence may be well within your reach.

What is financial independence?

When someone asks, “What is financial independence?,” coming up with a short and sweet answer isn’t always easy. After all, financial independence means different things to different people. Still, you might broadly define financial independence as the state of having enough money and passive income to live the lifestyle you desire. You could say it’s a sense of security, with more freedom to spend time doing what you want — whether that's pursuing hobbies, traveling, spending time with your loved ones or anything else.

Financial independence doesn’t mean you have to stop working. Many financially independent people choose to keep working because they enjoy what they do. Financial independence just means you have the power to make that choice for yourself.

Levels of financial independence

Because financial independence can mean many things, it might be helpful to think of it as more of a spectrum. At one end, you have basic financial security. This typically means having enough resources to cover core needs like housing, food and healthcare.

Moving up the spectrum, as you begin to cover more than your basic needs, you’re becoming financially stable. This is where you start to have provisions for emergencies, short-term goals and possibly some modest luxuries too.

At the highest levels of financial independence, you begin to achieve outright financial freedom. Being financially free means untethering your livable income from employment, with assets that exceed your expenses and allow you to live a really good life without worrying about money.

Challenges in achieving financial independence

The journey to financial independence has its ups and downs. Here are some common stumbling blocks on the path to financial independence:

  • Unstable income: Income variability may make it difficult to consistently save.
  • High cost of living: If you’re in a high cost of living area, saving a significant portion of your income may be more difficult.
  • Debt: High-interest debt can potentially hamper your ability to build financial security and may slow your pace.
  • Impulse spending: Staying committed to long-term goals is challenging for many people, especially when faced with short-term temptations to spend.
  • Inflation: Over time, inflation may reduce the value of your income and savings.
  • Personal circumstances: Unexpected life events, such as health issues or changes in family structure may pose new financial challenges.

Steps to financial independence

Achieving financial independence may seem like a lofty goal, but by breaking it down into key steps and committing yourself to financial discipline, you may be able to make that dream a reality. Let’s look at some core principles to keep in mind when learning how to become financially independent.

Setting financial goals

The first step to financial independence is setting clear and realistic financial goals. Ask yourself, what does financial independence look like for you? Is it being able to pay all of your bills comfortably? Is it a specific savings amount? Is it retiring early? Once you define what financial independence means to you, you can set the short-, medium- and long-term goals you need to help make it happen. Making sure these goals are specific and measurable might help you stay on track during your journey to financial independence.

Minimizing debt

Debt is one of the biggest obstacles to financial independence. High-interest debt, in particular, could drain resources and make it harder to save. As such, taking steps to minimize debt is important to setting yourself on the road to financial independence. This may involve debt management strategies such as paying off high-interest debt first, making more than minimum payments or consolidating debt to lower your interest rates.

Saving

Creating a robust saving strategy is another core pillar of financial independence. Whether you are saving in a traditional savings account, a high-yield savings account or a certificate of deposit (CD), understanding the various options available may help you make better use of these tools. Diversifying your savings across different types of accounts might potentially help increase returns while mitigating risks. The goal is to grow your savings over time, creating a buffer against financial emergencies and giving you the resources to achieve financial goals.

Creating multiple income streams

Relying on a single income stream may sometimes feel risky. What happens if you lose your job or face a significant income reduction? Creating multiple income streams can help provide additional financial security and potentially accelerate your journey toward financial independence. This could be anything, from freelancing to starting a side business or pursuing passive income opportunities. The key is to find additional income streams that align with your skills, interests and lifestyle.

Financial independence services

For individuals looking for outside help to improve their economic self-reliance, financial independence services exist to offer a guiding hand. These services typically provide a number of resources, from budgeting advice to debt management strategies and savings guidance. Their general objective is to help clarify the basics of personal finance, potentially making the path to financial independence clearer and more attainable.

That said, financial independence services may not be right for everyone. The success of these services hinges on their alignment with your individual financial circumstances and personal goals. Here are some possible pros and cons you might want to consider before hiring a financial independence service.

Pros of financial independence services

  • Guidance: These services typically offer trained and experienced counsel to help you make more informed financial decisions.
  • Simplification: If you’re still learning the fundamentals of personal finance, some financial independence services may help you learn the ropes of financial literacy and simplify complex subject matter.
  • Structure: Financial independence services offer a systematic blueprint for financial planning that may help you set goals, measure your progress and provide extra “guard rails” for your financial discipline.

Cons of financial independence services

  • Cost: Some may find the fees of a financial independence service outweigh their potential benefits, particularly those with relatively straightforward financial situations, such as minimal or no debt and a stable income.
  • Generalized approach: Despite their broad aim, these services may not fully cater to the specific needs of every financial situation.
  • Dependency: Depending on how you use them, over-reliance on financial independence services might impede the development of your financial literacy.

In summary

For many, the path to financial independence is a road well worth traveling, even with its many curves and speedbumps. The foundation of financial independence often takes smart saving choices, diversified income and minimal debt. For some, it may additionally require a helping hand from financial independence services. Financial independence isn’t always about crossing the finish line — it’s also about making consistently better-informed choices and having sound priorities to keep you financially healthy and increasingly secure.