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By Laura Martins
Special to the Financial Independence Hub
Financial Independence (aka “Findependence”) is something that many of us are working towards, but which very few actually achieve. Having a high-paying job alone does not guarantee financial independence. While making more money does make Findependence easier to achieve, the important thing to focus on is what you do with your money, rather than how much you earn.
It’s also important to understand that financial independence will take time and planning. With the right goals and steps in place, Findependence can be achieved, but it’s important to be persistent and patient.
In most cases, financial independence doesn’t mean you won’t work ever again, but it brings freedom so you can enjoy your life and work on the things that matter to you. Here are seven key steps to develop financial independence.
1.) Get to know your money
Before you can begin to work on your financial independence, it’s imperative that you know exactly what your money is doing. You must know how much is coming in, and how much and where you are spending it.
Develop a habit of checking your bank account. Ignoring it is one of the fastest ways to lose track and lose money. It might seem obvious, but developing financial independence means spending less than you earn.
Spend a few weeks or months tracking your finances and create a budget. It’s important that it’s realistic so you can stick to it.
2.) Remove non-essentials
Once you understand your finances, it’s time to find the areas where you can save more. This is one of the hardest parts on the journey to financial independence, but also one of the most important steps.
Look at your spending and assess what you don’t need. In other words, you should try to minimize your non-essential expenses. That might mean cancelling your gym membership, reducing the amount of streaming services you pay for or making more meals at home. While these things might seem small, they will all add up, and after a few months it might make a noticeable difference to your bank account.
3.) Increase your income
Now that you understand your finances and have your spending under control, it’s time to start saving more. The easiest way to save more is to make more. This will largely depend on your personal situation but a common way of earning more is negotiating a pay rise.
Asking for a pay rise is enough to make even the hardest worker nervous, but in reality, people ask and succeed. If you fail, it’s not the end of the world, and you have other options.
One option is finding another job that pays better. Alternatively, you could pick up a side hustle, some of which can be quite lucrative and easy to manage while you work full time.
4.) Make your money work
The next thing you need to do to achieve financial independence is to make your money work for you. With your spending under control, and hopefully a raise at work, your savings should be building up.
After you’ve saved up about six months of income, you can start to consider investing. Investing can be intimidating to those starting out; however, it’s one of the best ways to build wealth.
There are countless investing strategies, ranging from low-risk investments to aggressive strategies. Investing should be an ongoing thing, allowing you to build your wealth over time as your assets grow in value.
5.) Take advantage of tools
In 2018, we are spoilt for choice when it comes to apps, and this holds true in the financial world. There are a huge number of tools out there to make everything from budgeting to investing easy.
For one, your bank app may have ways to help you see where your money is going. On the other hand, companies like raiz make it incredibly easy to invest even the smallest amounts of money.
6.) Be adaptable
Being adaptable and flexible is crucial to reach financial independence. Life is unpredictable and certain times are bound to be more financially difficult than others. When you have less income, or your investments take a hit, it’s important you are adaptable so the health of your finances doesn’t deteriorate.
Have a plan in place for an emergency situation where you can cut expenses and continue building up your savings.
7.) Commit to living beneath your means
The most important step to Findependence is commiting to the process. Even if you get a great promotion and start bringing in significantly more cash, you can really benefit from continuing to live frugally, saving and investing the extra income. This is sometimes called delayed gratification. Rather than using your new flow of cash to purchase a brand new car, or escape on a tropical vacation, you put it towards your financial independence goals.
By making sacrifices now, you can reach financial independence and provide for yourself and loved ones throughout the rest of your life.
These seven steps will help you begin to develop financial independence. It will take some sacrifices and patience but the payoff is definitely worth it. Of course, there are other methods that may help you reach your goals faster; however, these will also involve more risk.
Remember to create a plan and focus on your goals, and your finances will thank you.
Laura Martins is a content manager for RateCity, where you can make smarter financial decisions and compare thousands of financial options.
