Surprisingly, the path to financial independence is much simpler than a lot of people perceive it to be. You do not need to have a million dollars in the bank for you to be declared financially independent and for you to meet your goals. No matter the size of your paycheck, there are essentially three main fundamentals to financial independence:
- Making money
- Saving it
- Making wise investments
With these three components in mind, anyone can get started, even if you are only on your first paycheck.
Reduce your expenses in order to save more
This is one very important factor and it applies even to the richest of men. If you spend more than you earn or even almost as much as you earn, you can never achieve financial independence. Your life will be full of debt and misery. The secret lies in saving much more than you spend. That way a larger percentage of your income would go to saving rather than spending. Of course this seems counterintuitive to financial independence, because the whole idea is to live comfortably, with the lifestyle you desire. However, you should understand that this lifestyle will come after you’ve achieved financial independence. But up until that point, you must strive to live as frugally as possible.
The rate at which you spend will largely determine the amount of time it will take you to attain financial independence. The general rule is that the more you can save, the less time it will take for you to reach financial independence. As simple as it sounds, many people find it very hard to save money. That is the main reason why an increasing percentage of the population lives from paycheck to paycheck. In fact, some people aren’t even managing that, and are running out of money before pay day because their expenses are greater than their earnings. This is a dangerous way of living and it will slowly drive you deeper and deeper into debt. With debt, you cannot achieve financial independence.
To make sure you save more than you spend you could try the following:
Track your expenses
This entails having a list of the things you spend money on – the day to day expenses such as buying a pack of gum or the fare you spend commuting from one place to another. Tracking your expenses and writing down each one will assist you in being able to see where your money is spent. Doing this will also help make you more aware, and therefore more cautious, about what you’re spending money on. Try this for a month, and you will most certainly notice that your expenses will have been reduced greatly.
Work on a budget
Before you begin spending, consult the list you have made of the items you intend to purchase and estimate the amount of money you are likely to spend. Then prevent yourself from falling prey to impulse buying by forcing yourself to stick to that budget. This will help you estimate how much of your money is being spent where, and will also assist in you in prioritizing your expenses.
Consult a financial planner
As much as there is an emphasis on saving more money than you spend, we can’t overlook the fact that you have to keep up with your life, including making decisions such as buying a house or a car, or repaying debts such as student loans.
Talking to a financial planner will help you better see how you can manage your finances all the while still allowing you to save some money. A financial planner will be able to tell you whether your current income is enough to support the kind of lifestyle you desire, or if you will have to find supplementary income.
When it comes to consulting a financial planner, you must be prepared to take notes, pay attention closely, and be a fast learner in order to pick up on all the details he or she will advise you on. This is important because hiring a financial planner will cost you money and if you end up spending too much money on the planner; then you will end up spending and not saving, without the benefit of having fully understood the good advice you’ve been supplied with.
All wealthy people know that the key to financial freedom is having some income streaming in even when you are not working actively to earn the money. This is called “Passive Income,” and it’s only possible through making wise investments. What are some passive sources of income you could consider?
- Rent payments from the tenants of rental property that you own
- Passive or silent ownership in a business
- Interest or dividends from investments or trusts
- Sales from affiliate marketing
- Interest earned from loans
- Royalties from creative works such as music, photos, graphic design
- Annuity from things such as life insurance or lottery winnings, for example
- Pension payments or other retirement benefits
Having learned all that there is concerning financial freedom, it is now time for you to get up and go pursue your independence. Do not push it aside to tomorrow, or to next year, or once your next paycheck comes in. Financial freedom is a long journey that has to start early enough to make sure you reach the level you desire.
“A year from now, you will wish you had started today.” – as the saying by Karen Lamb goes
To add onto that, it would be prudent for you to keep up to date with financial trends in the world as well as with investment patterns. This will help you identify the good investments and the poor ones, and it will also build your knowledge on financial matters. New things are coming up every day and it is now up to you to keep up to date with all that there is to know.
Also, remember that this is not an overnight thing. Building wealth takes a long time and every rich person out there knows that. So do not get discouraged when it seems to be taking too long. As long as you do not stop along the way, you are guaranteed you will eventually get to achieve your goals
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