It is in human nature to be independent. One of the most essential sides of independence is to become financially independent. That’s why right after school, instead of asking for pocket money from parents, we start working in diners; we start newspaper delivery.
Even Sasha Obama, daughter of former US president Barack Obama worked in a restaurant when his father was very much in power. She didn’t need to work there, yet she chose to do so for experience & independence. Independence is the motivation that drives us to move forward & take control of every aspect of our life and financial aspects.
How To Become Financially Independent
1. Try to Avoid Loans and Debts
One of the vital methods of saving & to become financially independent is to keep away from loans, credits, debts, etc. It is transparent & natural you want to get some new clothes & gadgets often, travel, & live your life to the fullest when you are young & do not have worries about your family & career. However, only make loans if you want a new bike or phone.
Be smart when it is about money. It may seem easy to give loans back, but you will face many challenges. Regarding categories of debt like student loans, there are also some working substitutes. For example, you can apply for a scholarship. There are many choices for scholarships in colleges & universities around the world for brilliant students. Try your best to get them.
2. Start Saving Early & Set Financial Goals
If you aim to become financially independent as fast as possible, you should set practical but ambitious goals. The best way to make adequate savings is to make it a healthy habit of saving. An effective tip for those who use cash for their daily spending is to put into the moneybox the exact amount equal to the amount you spent on a particular thing.
For example, you buy a pair of jeans, & they cost $20. Make sure to put an equal amount in your moneybox the same day. Another excellent choice for credit cards is to set an automatic savings option & deposit a specific amount to a separate account each month.
3. Create Multiple Sources of Income
We live in a world where various & unlimited earning opportunities are available. From starting a YouTube channel to renting out a room to an organized Investment Plan, there are many processes to generate some additional source of income for yourself. When you create an additional source of income, you can accomplish your financial goals faster.
The extra income you get regularly can be placed in any account dedicated to your goal. Moreover, these sources of income can also be utilized long after you have retired from your regular job. This ensures you can uphold your standard of living even after you have retired or have no stable source of income.
4. Track Your Spending Habits
It is crucial to understand the ways & reasons for your spending daily & monthly. Do your best to keep your monthly expenses in your control. You can use various apps & software that can automatically calculate your monthly budget & categories of spending.
If you do not wish to download & install such apps, you can use your credit card statement. Some banks let you see the map of your spending divided into separate categories. These could include food, books & literature, rentals, utilities, cars, health care & medicine, insurance, & many other sections.
5. Spend Money Economically
We live in an economy where loans & credit cards are readily available. We may find controlling expenses difficult. However, this is essential if you want to become financially sound. You can’t create wealth or become financially independent if you continue to maintain a high standard of living beyond your capabilities.
Therefore, you must identify your needs and wants before you spend money on something. Asking a question as simple as “Do I need it?” can help you to recognize the difference between your wants and needs. You may need that kitchen set, but that 43-inch smart TV despite having a 32-inch TV in your drawing room? That is definitely a want.
Saving, investing & tracking your money (both income & expenditure) is not some one-time task. Instead, to become financially independent, you should always be attentive. Getting financial independence is a process that takes time, but you can accomplish this goal without losing out on any opportunities with persistence.
6. Create an Emergency Fund
Because there will always be unanticipated events, having an emergency fund is one of the most vital requirements. One may not need to make loans if they have an emergency fund that can be used in case of medical conditions, job loss, or any other adverse scenario.
In the recent pandemic, many people have lost their jobs. Many people had to close their businesses down. People with some emergency funds could manage the situation more effectively than those who don’t have it. Even if you are confident enough with your present income, you can’t guarantee your future income.
Consider your emergency fund as a lifeboat on a cruise ship or some safety net. Ensure that your emergency fund is good enough for six months of your expenses. So, start saving & put it into your emergency fund so that you can get mental peace & can achieve financial independence.
7. Get a Life and Health Insurance
Buying an insurance policy is one of the excellent habits to get financially independent. A life insurance policy can act as a safeguard in case of some unfortunate accident. The health insurance policy can act as a safety net while you are trying to be financially independent.
If you face any medical emergencies, all the money you have saved can be spent. That means you will be back at square one & will have to start again. The health insurance policy can help you to meet medical expenses & makes sure your savings aren’t wiped out due to some emergency.
8. Create a Short-Term Plan for Building Savings
Achieving financial freedom cannot happen overnight & you must have a buffer to pay for the expensive surprises life can throw at you while you try to put your plan into action. Once you have cleared off debt, you will have more money in your hand each month & to put into savings.
Once you have created a six-month emergency fund that can support everything – from a sudden income loss to a significant medical emergency – you can put that extra money into your money-making machine. Having this fund is practical, & it is necessary for your mental well-being. When you know you have a safety net, you can take more risks & say yes to those experiences that offer you true happiness minus the fear or guilt that would otherwise accompany them.
9. Take Help of Financial Advisor
The plan of actively making decisions about your money & your investments may feel daunting. If you feel that way, you are not alone. You have worked hard to lay the proper foundation, so make sure to leave your financial future carefree.
It would help if you employed a financial advisor’s expertise to help you navigate your investment options & handle the ups & downs of the stock market. A financial advisor can help you to rebalance your funds frequently, so you minimize your risk, create a practical plan for what financial independence looks like for you, set up a withdrawal plan for your precise situation & many more ways.
The road to financial freedom is not a get-rich-quick strategy. Financial freedom doesn’t mean that you are free of the responsibility of managing your money well. It is quite the opposite. Having absolute control over your finances results from hard work, sacrifice & time dedication. All of that effort is worth it. Here are some tips to Become Financially Independent.