How To Achieve Financial Independence – Recent surveys reveal that an increasing number of women prioritize financial independence as their top financial goal. A recent Fidelity Investments survey found that 58% of women are driven by the desire for financial security and freedom from money worries.
Yet, the path to financial independence remains challenging. According to REAL SIMPLE and Investopedia’s 2024 Her Money Mindset survey, only 36% of women reported having a retirement account, while 71% had a savings account. Furthermore, 54% of respondents admitted to struggling with at least one major expense.
How To Achieve Financial Independence
Whether you’re aiming for full Financial Independence and Retire Early (FIRE) or simply seeking better control over your finances, this guide provides actionable steps to help you achieve your financial goals.
Defining Financial Independence
Financial independence varies from person to person. Walter Russell, a financial planner from Ohio, explains, “For some, it means no longer needing a regular job because of alternative income sources. For others, it’s about being debt-free and feeling secure and in control. It can also involve being prepared for retirement, having the freedom to start businesses, or living wherever you choose.”
Ultimately, the essence of financial independence is about feeling empowered and confident in managing your money and future. Your journey will be uniquely shaped by your values, resources, and preferences.
The Basics of Financial Self-Sufficiency
At its core, financial independence involves having enough income and savings to cover your living expenses. This level of financial self-sufficiency means you can meet your daily needs without constant financial stress.
Take the example of Brock and Becky Waterman, known as the FIRE Travel Family. They achieved financial independence by significantly reducing their expenses. They sold their home, downsized their possessions, and utilized geographic arbitrage to lower their living costs.
“During COVID, we evaluated our financial situation and realized that by selling our house, most of our belongings, and our vehicles, we could attain financial independence and avoid traditional work,” Brock Waterman explains.
By cutting substantial costs such as health care, child care, and property taxes, the Watermans halved their expenses. This financial flexibility allowed them to prioritize spending quality time with their children and travel the world.
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Achieving Freedom from Employment
Financial independence often means no longer relying on a traditional paycheck. Building passive income streams and investing wisely are key strategies for many.
Anna N’Jie-Konte, a certified financial planner and president of Re-Envision Wealth, recommends, “Investing 10-15% of your gross income for retirement and allocating an additional 20% of your after-tax income toward other financial goals is a solid strategy.”
While some may live solely on savings, most people should consider how to access cash quickly if needed. Self-employment or working in high-demand fields can also enhance financial independence without requiring substantial savings.
Financial Independence at Various Income Levels
Contrary to popular belief, achieving financial independence doesn’t necessarily require a high net worth. N’Jie-Konte points out that middle-income earners may find it easier to reach financial independence due to the higher percentage of retirement income covered by Social Security.
Brock Waterman supports this view, emphasizing that it’s not about hitting a specific savings target. He notes, “When we worked for ourselves, we paid over $2,000 a month for health care. After reducing our income, we accessed subsidized health care, significantly lowering our premiums.”
Three years into their financial independence journey, Waterman encourages others to pursue their goals without waiting for a particular financial milestone.
Building Long-Term Financial Security
Long-term security is crucial for many, whether it’s preparing for emergencies or funding educational goals for children and grandchildren. Financial security encompasses both what you want to spend your money on and what you want to avoid.
For instance, the Watermans chose to allocate funds for their children’s vocational training and entrepreneurial endeavors rather than traditional four-year college savings. They set aside $10,000 to $15,000 per child for skills development or business ventures.
Russell emphasizes that regardless of income level, disciplined saving, investing, and living below your means are vital. “Increase your savings rate and maximize investment returns through strategic allocation. Avoid lifestyle inflation and focus on long-term wealth accumulation.”
By building a solid foundation of financial discipline, you can achieve lasting financial independence and enjoy the freedom it brings.
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