How to become financially independent? | 10 Best ways to gain financial freedom

Looking for the best ways to attain financial security for yourself? This post will show you how to become financially independent.

How to become financially independent

Becoming financially independent is the goal many people want to achieve. Financial independence means saving, investments, and money to pay for the standard of living you want for yourself and your family. You want your saving to grow for contingencies or to follow your passions.

Financially independent meaning

Financially independent meaning is to have enough money to pay for your living expenses without having to be employed or dependent on others. It means having a passive income. There are several ways to become financially independent.

Each method has advantages and disadvantages. If the statement, I want to become financially independent resonates, you need a sound financial plan and budget. Once, you have a clear picture of your current expenses and income you can take concrete steps towards your financial goals.

Relevance of becoming financially independent

The relevance of becoming financially independent is as follows-

• Job security is an illusion and there is always a risk of losing your job. What does it mean to be financially independent? You are not trapped in the rat race and have the freedom to follow your dream opportunities.  
• Financial independence allows you to help others. Once you are economically independent, you can look for ways to help your community. You can use your expertise to solve complex problems.
• Once you are financially independent, you have the resources to splurge on your dream car or house. 
• Financial independence gives you the flexibility to structure your work to suit it.

Also read: 25 Essential Questions to ask a financial advisor | Know your advisor

How much money do you need to be financially independent?

A common question asked by many is how much money do you need to be financially independent? The answer is you need to know two things – your annual expenditure and the number of years you need to spend it. Once you can answer the question, you can calculate the estimated amount using the 4% rule. The 4% rule assumes you deplete your assets by 4% annually. 

Advantages of being financially independent

Financial independence meaning can be different for different people. Some people think of it as having enough money without requiring to work, while young adults may think of it as being able to meet financial obligations without help from others. Irrespective of your definition, there are some distinct advantages of being financially independent.

1. Financially independence helps us feel secure 

Becoming financially independence can give your peace of mind. Feeling secure is a basic human emotion and dictates much of our actions. It is stressful to live paycheck to paycheck, being in debt, and wondering if you will be able to meet your expenditure if you lose your job. When your passive income exceeds your minimum expenses, you feel secure.

2. Be financially independent and have more control over your time-

If you want more control over your time, aim to be financially independent. You will have the freedom to decide how you will spend your time. Once you are financially self-reliant, you can either work because you are passionate or retire and pursue other interests. Financially freedom can give you the freedom to follow your passions.

3. Become financially free to get extra investment power

Your assets and investments give you additional income. You can consider it as a bonus, on top of your salary. After you have financial independence, you will have the means to grow your wealth. You will not need to withdraw your money to reinvest. Without having to withdraw your money, your wealth will increase.

Also read: How much money should I save before buying a house? | A financial guide

3 important items to note before gaining financial independence

We tend to take advice from several sources before making any financial decisions, Some of which may not work for us. There are myths and misconceptions about becoming financially independent. Mistakes can range from confusing high income with wealth or not understanding taxation while selecting an investment portfolio. Here are some insights before gaining financial independence

Achieving financial independence by understanding income is not wealth

Most of us believe you need a high-paying job to achieve independence. While it is easier to amass assets if you earn well, you need to spend less than you earn. Remember, there is a difference between income and long-term wealth. Income is a vital component of wealth but not the only factor. Long-term thinking will help you accumulate wealth. Ways like side-gigs and portfolios like stocks, mutual funds, and real estate are just some wealth generators.

Creating surplus funds for reaching financial independence

You cannot invest unless you have surplus cash. Your investments need to reach a critical mass before the returns on the assets can help you reach your goal. Financial independence is a slow process, take small steps every day – reduce expenses, generate extra income, and invest the money. Remember to utilize a return on investment to increase your portfolio.

Taxation matters for being financially free

You need to realize not all income is equal. Asset planning can make the difference between well-off and rich. People with low wealth have high taxable incomes, being financially free may generate unrealized gains from real-estate appreciation, capital gains, and profits earned from tax-free accounts like 401K. Money is not taxed unless you withdraw it for retirement.

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Top 10 ways to become financially independent

Financially freedom sounds wonderful. It means having enough savings, investments, and cash on hand to afford the standard of living you want for yourself and your family. Most people fail to achieve their objective of being financially independent and retire early. They get burdened with debt, financial emergencies, and overspending. Here are ways to become financially independent

1. How to be financially independent by setting goals

The first step of how to be financially independent is setting goals. Define what financial freedom means to you. Try to be as detailed as possible the more specific you are about your goals, the more likely you are to achieve them. Next, reverse-calculate to create financial milestones you should achieve at regular intervals. Write the milestone down and put it in front of your financial folder.

2. How to become financially free by making a budget?

One of the vital steps on how to become financially free is making a monthly budget for your household. Try to stick to it, pay your bills, and ensure your savings are on track. If you feel tempted to splurge, take a look at your goal sheet on the first page of your financial folder. It will remind you of your goals.

3. How to gain financial independence by paying credit card bills in full.

Credit cards are a debt trap and are like high-interest consumer loans. Credit cards are counterproductive to wealth generation. One of the ways on how to gain financial independence is to ensure you pay off your card payment fully on time. Student loans, mortgage, and car loans are similar but have a lower interest rate, so prioritize credit card bills. Paying your credit card bills on time will help build your credit rating.

4. How to be financially independent? Create an automatic savings account 

Remember to pay yourself first. A great step towards how to be financially independent is enrolling in your employer’s retirement plan and making a matching contribution. It is a great idea to have an automatic withdrawal for an emergency fund which you can use to meet unexpected expenses. Try putting the money aside as soon as you receive your paycheck, so it is not spent.

5. How do I become financially independent – start investing 

There are occasional bad stock market runs, but it is still one of the best places to invest your money. You want to know how do I become financially independent. Invest in the stock exchange but avoid stock picking. We suggest opening an online broker account, maintaining a manageable portfolio, and making periodic contributions.  

6. Becoming financially free by watching your credit

Your credit score determines the interest rate you pay when you apply for a loan to buy a car or home. It can impact car insurance and life insurance premium. Insurance providers presume people with poor financial habits will be reckless in other aspects of their life. If becoming financially free is important, get a credit report periodically to ensure your rating remains positive.

7. How to get financial independence by negotiating?

Many people hesitate to negotiate for goods and services because they are worried they will look cheap. One of the ways, how to get financially independence, is overcoming cultural hesitation and negotiate. You can save a considerable sum every year. Small businesses are usually more open to negotiating, especially if you buy in bulk or are an old customer.

8. How to achieve financial independence by continuous education

One of the best ways on how to achieve financial independence quickly is to stay informed. Study applicable changes in tax law every year to ensure you have utilized adjustments and deductions. Keep abreast of financial news and stock market movement and adjust your portfolio. Knowledge will protect you from potential crooks who lure investors with the promise of quick returns.

9. How to become financially secure by proper maintenance

One of the best steps on how to become financially secure is taking good care of things you own. Whether you made a big purchase like a car and lawnmower or smaller purchases like shoes and clothes take care of your possessions, proper maintenance will help it last longer. The cost of maintenance is usually much lower than the cost of replacement. It can help in considerable saving over time.

10. How to become financially independent fast- live below your means

If you want to know how to become financially independent fast, you need to maintain a frugal lifestyle. Many wealthy individuals have developed the habit of living below their means even after they are financially free. You need not be a miser, but question if you need to purchase or do you want it.

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Steps to becoming financially independent in your 30s

Yours 30s is a critical decade, you have completed your education, you are progressing at work, many people in their 30s marry and start their families, or buy homes. To meet your goal of financial freedom at 30, you need to change the way you perceive money. Here are our top steps to become financially independent in your 30s.

Saving aggressively best way to become financially independent 

By saving aggressively, we mean saving at least 50% of your savings. Analyze your spending you need to make financial sacrifices to reap benefits. To increase your savings, you either need to cut your expenses or increase your income, preferably both. Scout around for the bank that gives you the best interest rate and saves a portion of your money in the bank. 

Improve investment knowledge is one best way to become financially free

Take the time and effort to learn and become well-informed about personal finances. One of the best ways to become financially free is to know your investments thoroughly. We recommend investing in a well-balanced portfolio to minimize risk. Since you are young, you can invest a portion of your savings in high-risk investments like cryptocurrency. Look at investing in a diverse portfolio that grows in value. Avoid getting sucked into quick rich schemes.

How to reach financial independence by knowing your target numbers

You may want to be financially free, but you need to know what it means to be financially free. Calculate how much money you will need to retire at 30. How to reach financial independence – the first step is to work out exactly how much you need to withdraw, realistically without impacting your capital growth. Once you have an amount, you can formulate saving, investing, and spending strategies.

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How to become financially independent in 5 years?

A financially independent may mean having enough income to pay for your expenses in your lifetime. A financially independent person can live on the income earned from their expenses. Five years is a short time frame, but with a discipline, and financial independence plan, it is an achievable goal. Here are the top steps for how to become financially independent in 5 years.

1. Financial independence planning involves examining expenses 

To achieve the goals you need to spend less. You need to know your expenses and income. Spend some time examining your spending in detail. Plan to pay off your consumer debt, and pay off student loans, credit card debt, and housing loans. It will help reduce your monthly expenses.

Since you are working on an accelerated time frame, look for ways to cut your expenses. Start by cutting impulsive purchases and subscriptions you do not use. You can then work your way up.

2. Reach financial independence by increasing your income 

Saving and investing your money will not happen by just cutting your expenses. Look for ways to increase your income to reach financial independence. You could look for a second job or moonlighting or ask for a raise in your present job. You will need to increase your savings rate to meet your financial goals.

3. Financially independent retire early invest strategically 

Financially independent retire early in five years will be impossible if you do not invest strategically. Focus on investments that generate a stream of income in the long run. You will possibly max out the investment quota from 401K to IRA. Real estate and index funds are considered sound investments. Do your groundwork before investing.

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How to become financially independent in 10 years?

Becoming financially in 10 years is a realistic goal. To get set on the road to financial independence, change your spending and investment behavior. Here are top ideas on how to become financially independent in 10 years –

• Change your mindset, stop thinking the more money you earn, the more you can spend. Instead, start thinking of money as assets that can fund your future. Aim to maximize your surplus every year. Estimate the money you need in the year. Use the 4% rule to calculate how much you can withdraw from your portfolio. 
• Use the rule to reverse engineer how much investment you need to accumulate every year.
• To reach your goal you need to increase your surplus i.e. the difference between your income and expenditure. You need to reduce expenses. You can cut out or reduce expenses altogether.
• Maximize your income. It may depend on your job and expertise. High performance and promotion may help. 
• Reduce your expenses as you can. Aim to be frugal with your spending. It may not be as big a sacrifice as you imagine, we often make impulsive purchases. Another common pitfall is increasing your spending as your income increases.  
• Now that you have a surplus, invest the surplus. We recommend investing your money in low-cost and index-cutting funds.

How to be financially independent without a job?

Becoming financially independent without a job is not easy. Here are some tips if you want to know how to be financially independent without a job.

• Investing in real estate is a popular way people achieve financial independence. You may have to work for the upfront capital. Once you have a real estate portfolio, you can get a steady income till you die.
• Investing in dividend-paying stock is another way to earn independent money. You need to have a large dividend portfolio that pays you every month or quarter.

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What to do after financial independence?

People feel a little lost after becoming financially free. They wonder what do I do after financial independence. Here are some tips that may help –

• Now that you are financially independent continue working. Now instead, you can work at your dream job or do what you always wanted to do. 
• After early retirement, work will no longer control your schedule. Traveling is an excellent way to spend some time. You can either plan your trips well in advance or be spontaneous. You can find some excellent deals online.
• Most people never become financially independent. Consider sharing your knowledge on how to be financially independent in an e-book or blog.
• Spend time honing your hobby.
• You can continue working but opt for a less stressful schedule.

How to be financially independent in college?

All college students want independence. A question often asked is how to be financially independent in college. Here are some tips that will help you along –

• Avoid falling into the debt trap. You may want to live a high life – travel, buy new clothes, and party, but you need to be smart about financial decisions. Try to avoid student loans, instead, look around for scholarships. 
• If you aim on becoming independent from your parents financially, you need to set realistic goals. Start savings as a healthy habit.
• Track your daily and monthly expenses, and try to keep your monthly expenses low. There are apps available that help you calculate your monthly budget and categorize your spending. Alternatively, use your credit history as a guide. 
• Avoid using your credit card. Make a rule to use cash for your daily expenses.
• Remember to have fun without going overboard.