Financial independence refers to creating enough wealth to live without working. Often those who consider themselves financially independent own assets that produce a steady income that is at least equal to their outgoing expenses. Generating enough income to meet your needs in ways besides a primary occupation is achieving financial independence. Therefore, this means an individual has complete autonomy over how they spend their time, without having to work a regular job in order to pay their bills. It is easy to start making steps towards achieving this, and there are plenty of ways you can start planning for complete financial freedom.
Spending less than you earn is key. This way you can put money away for your future. Elizabeth Warren, a bankruptcy expert and one of the Time Magazine’s 100 Most Influential People in the World set up the 50/30/20 plan to manage your money throughout life. This creation aims to help prioritise your money and suggests where is best to spend it. The 50 part proposes spending 50% of your income on ‘needs’. This would consist of food, mortgage costs and utilities. Then 30% goes to ‘wants’, like shopping and days out. After you have spent both 50% and 30% of your monthly income, 20% of your income will form part of your savings and retirement fund. If you consider this method, you may need to make some slight changes to the way you live and what you spend your money on. You may decide to find somewhere more affordable to live or miss an annual family holiday one year, or even cut out eating in restaurants altogether. All of this will allow you to have more financial independence in the long run.
Have you thought about ways in which you can maximise your income both now and in over the forthcoming years? Extra cash can help you become more financially independent as you will have more to save each month. Could you pick up an additional job that forms a secondary income, maximising the money you bring in each month? Is a freelance role for you? This allows you to carry on with your main job while earning extra cash on the side. Have you ever considered investing in property? Property investment is one of the best ways to grow your monthly income. Monthly rent from tenants over covers the buy to let mortgage payments, allowing you to generate an extra income, and save more for your future. RW Invest property experts specialise in buy to let investments that aim to provide a stable financial future for all their investors. By providing robust rental yields and strong potential for high capital appreciation values, these properties are perfect for generating an additional income.
There’s no time like the present. If you start preparing for your future as soon as possible, then you can begin to build a solid strategy for financial independence. There are a plethora of ways in which you can do this. An emergency fund is usually advised, which refers to a couple of monthly living costs put aside into an account that can be easily accessed later. Once has been built up over time you can begin to think about what wish to do with your savings (using Elizabeth Warren’s saving model this should be 20% of your income).
Learning to live beneath your means is one of the central costs of learning to become financially independent, therefore the quicker you start, the more money you will potentially save. If you are willing to curb your spending now, then this will ultimately provide you with a better, more secure life in the long run.