What does it mean to be financially independent? Is it a million dollars…five million dollars…or ten million dollars? Is it being able to buy anything and everything you want?
People often think of financial freedom as having one million dollars or to be able to buy to your heart’s content. The media has influenced, especially the younger generations that have been enthralled with reality tv and technology, our desire for more and more. I believe the public has a warped perception of what it means to be financially independent. Contrary to popular belief, financial freedom can be achieved with a little planning and persistence.
Listed below are some attributes of financial independence and what it really means. If you get your mind right, focus, and plan a lot can be accomplished towards these goals.
You’re Not Dependent on a Paycheck
Not being dependent on a paycheck from your job each month is the first step in achieving financial independence. This can be achieved in various ways, as stated below. Try to build multiple income streams and an investment portfolio as these provide you with flexibility in your work and calendar. The more income streams you build up the less you will require from your portfolio. This means you will need less from it and therefore not require millions of dollars in your nest egg.
You Can Cover Living Expenses
The first point on the list is being able to cover living expenses. This can be done in various ways. One is through your investment portfolio. This could consist of various stock and bond funds. Another way could be from streams of income, such as rental properties, franchise fees, or an e-commerce website. These are just some examples of income streams.
Get a handle on your living expenses and keep them low. Think through a cheaper home if you’re in the market, pay for the car in cash, or eat out a couple times a month instead of couple times a week. My wife and I just switched to internet TV and are saving $150/month for example or $1,800/year. Investing this over a 25 year period could equate to $150,000 + dollars in the future. Look at your current expenses and see where you can save. Then you will have an idea of what you need to save to cover your expenses.
You Can Fund Outside Interests and Activities
This is one of the great benefits of having saved and invested money throughout the years. You can enjoy yourself a little more by indulging in the things you care about. More opportunities become available to explore interests and hobbies. You may stumble upon talents you never knew you had or a hobby you never knew you enjoyed.
You Can Afford Time
Time is arguably the most sought after reason to achieve financial independence. Once you have built a nest egg large enough to fund living expenses you don’t necessarily need to dependent on a 9 to 5 job. This allows you to take more time off or pursue a different career track or freelance work. Any additional income will be icing on the cake. This will give you time to explore outside interest and activities as said above. As always, you must keep any eye on your inflow and outflow, but once you run the numbers and create a plan, more time and flexibility are achievable.
You Have Financial Flexibility for Life’s Luxuries
Life’s finer things is what most people think of regarding financial freedom. Obviously, the more money you make and the more money you save will equate to what you can afford above and beyond your living expenses. If you can handle bigger purchases, such as nice homes, cars, jewelry, and fine dining this is a sign you’ve achieved financial freedom. That said, a lot of people will fund these luxuries and not be able to afford them. It’s not uncommon for people to be making $500,000 per year and living paycheck to paycheck. As always, you must be aware of income, expenses, and savings rate. Lifestyle inflation will get the best of you if you don’t keep an eye on these areas and you’ll spend your raises and extra income. This will ultimately hinder your ability to achieve financial freedom.
Achieving financial freedom is very attainable. Once you accomplish these five things you are well on your way to living life on your own terms financially. Staying focused by reviewing your financial goals, savings rate, and investments can set you up for success later in life, but you MUST START NOW. Delayed gratification and sacrifice will pay off down the line and instill good habits in your financial life.
If you’d like an objective second opinion about your finances, please contact Michael Shea, a CERTIFIED FINANCIAL PLANNER™ at Applied Capital. Email him at email@example.com
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