Are you looking to gain financial independence? It’s not as hard as you might think. You don’t need a financial advisor to manage your wealth when you have all the essential information up front. Learning how to become financially independent is your first step to mastering your finances.
It’s never too late to start saving. And whether you’re just starting your first job or about to access your retirement accounts, being financially independent is a goal everyone should have. With a bit of planning and motivation, you can save money and eventually become the master of your finances!
If you want to know how to become financially independent, take advantage of the expert tips below.
6 Tips To Achieve Financial Independence
Becoming financially independent requires a solid plan. Try any of these six tips when you want to start investing in your personal finance goals. In a few years or less, you could become financially independent!
1. Make Sure You Have a Savings Account
An important tip for becoming financially independent is to make sure you have a savings account on which to rely. Using it as an emergency fund, try never to touch the money in your savings account unless absolutely necessary. That way, when unexpected expenses come up, you can save time taking care of the issue because you have money to fall back on. It may seem difficult to get started, but there are ways to save money fast.
2. Establish Credit
Working on your credit is an important step towards establishing financial independence. When you have a good credit score, an equal housing lender is more likely to grant approval for loans, mortgages, and other financial endeavors that might help you out in the future. Also, the longer you work towards building your credit, the better loan deals you’ll be able to find. In other words, establishing credit successfully can keep you from getting stuck with the highest interest rate on funding.
3. Maintain Consistent Income
Part of the backbone of becoming financially independent is to have a steady job or career. Consistent money coming in will help you take care of your bills, debt, and other monthly expenses. Besides providing money, having a job can allow you to benefit from employer offers like raises, health insurance, and more.
4. Add to Income With a Side Hustle
Once you have a steady income and feel comfortable with your workload, try stepping it up and looking for extra work outside your first job. A little extra income can help take care of your monthly expenses or add more money to your savings account. Either way, it’s a great step towards becoming financially independent.
Instead of a side hustle, you can also try to invest your money to build your additional income. But, it would be best to work with an investment professional before making any final decisions. Luckily, there are plenty of extra income ideas to choose from.
5. Pay Off Outstanding Debt
If you truly want to achieve financial independence, you’ll have to knock out your debt. To pay off debt a little faster, try paying more than the minimum monthly payment due each month. Also, since interest charges usually come from the total balance of a loan, you’re expediting the payoff process and reducing interest at the same time by paying more each month.
To spend even less time paying off debt, focus on loans with a higher interest rate first. Student loans, for example, usually come with high interest rates. By making it a priority to pay high interest loans now, you’ll accumulate less debt in the long run.
6. Keep Expenses Low
To maximize your savings and become financially independent, you want to keep your expenses as low as possible. Cut costs where you can, and only pay for the things you need. If you don’t own a car, use public transportation and save on a car payment. Also, many companies charge extra fees when you pay a bill over the phone or through the mail. Take advantage of online banking and pay your bills digitally to save on these unnecessary costs.
Organize Your Finances
For long-term success towards financial independence, it is important to keep the money going in and out of your bank account organized. Start with creating a monthly budget by making a line item for everything you need to spend money on each month. Include expenses as well as savings goals. Then, add to it and work in your annual expenses. Depending on your age, you may also want to consider retirement planning. From there, all you need to do is stick to your budgeting plan, and your finances should stay in order.
You can also take advantage of free advisory services online for extra help with your financial planning. There are trusted financial experts online who can assist people looking to learn more about becoming financially independent.
Benefits of Financial Independence
Once you become financially independent, the possibilities are virtually endless. When your finances aren’t holding you back, you can use any extra money set aside for whatever you want.
For example, you could use your money to purchase some real estate. From there, you can either enjoy your nest egg or use your real estate as a rental property that could earn thousands of extra dollars a month.
There is also the option to invest your additional income. You can increase your total income by double, triple, or more through investments. Mutual funds can also help with investment fees and taxes because those expenses are split between all investors.
There’s also a certain sense of accomplishment that comes with financial independence. When you set goals for a specific time frame and follow through to meet each goal, you feel a well-earned sense of pride. It’s a great feeling knowing you’ve done a good job handling your money long-term.
Other long-term benefits of gaining financial independence include the option to retire early. When you get your credit in order when you’re young, you may be able to benefit and enjoy retirement early on in life.
What Holds People Back From Financial Independence?
While cutting costs and wise investments are smart decisions that can help you become financially independent, there are two main obstacles that can hold you back.
Owing a substantial amount of money can really hold you back from budgetary goals like becoming financially independent. Some common forms of debt people deal with are:
- Student debt
- Credit card debt
- IRS debt from taxable income
- Medical debt
- Mortgage debt
Excessive debt can also serve as a red flag for traditional lenders, who already have a low-risk tolerance when it comes to loan approval.
Bad Spending Habits
Poor spending habits like unnecessary shopping and lack of financial planning can be major hindrances when trying to become financially independent. Suppose you spend hundreds of dollars each paycheck on things you don’t need. In that case, chances are you won’t have much to contribute towards your savings or emergency fund every month. It’s important to focus on creating good financial habits.
Irresponsibly handling your online banking accounts can also hold you back from financial independence. Since banks restrict account access to anybody who isn’t an authorized user, sharing your banking information with other people can put your finances at risk. If your password or other private info fell into the wrong hands, someone could hack your account and take your money.
Don’t let anything hold you back from financial independence. Start to save and invest in your future now, and your bank account will thank you later!
And if you’re currently in the market for a loan, you may want to apply for a bad credit loan online!