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5 Steps to Accelerate Your Journey to Financial Independence
Wealthy people can make decisions not guided by their financial interests. In fact, they may even act against their economic interest. How can this be? In this article, we discuss steps that can be taken in order to reach true financial independence.
Well, whenever an A-list celebrity or a major businessman spends a preposterous amount on something stupid, random, or spiteful, you’ll hear a comment that they have f-you money. The definition of f-you money is that they have so much wealth that they don’t ever have to care or worry about it.
Still, is this carelessness and recklessness available only to those with millions? Not necessarily. Here are a few tips to provide this luxury (or the closest you can get to it without becoming a billionaire).
1. Become financially literate
The first thing you need to do to become financially independent is to learn how to make a budget. The concept is simple, you put what you make in one column and then list what you need to spend. Ideally, this would fit 50% of your leftover income. The rest can go partially into your savings account and your wants. This is the so-called 50-20-30 rule.
Not all the money that you make is yours to spend. You also need to learn a thing or two about taxation. In fact, this should probably be the first thing you need to check out. Ideally, you would hire an accountant.
If you plan to invest, you must learn how to plan your investment. For this, you first need to learn how to research investment. While this is not a route that everyone takes, it’s necessary if you plan to create passive investments this way.
Most importantly, you need to learn how to set financial goals. Contrary to your belief, planning to get married, buy an apartment, or have a child are not just major life-changing decisions. They’re also major financial decisions. You need to take this approach, as well.
2. Increase your sources of revenue
Making more money is not necessary to have financial independence. However, it makes things a lot easier.
You need to see every dollar you have as an employee with the sole purpose of making more money for you.
As Edgar Bronfman once said:
“To turn 100 into $110 is work. To turn $100 million into $110 million is inevitable.”
To get there, you need to create passive income streams. Stocks that create dividends and real estate are the most obvious choice, but they’re not the only thing you have available. You can also buy equipment that you can rent out.
Don’t have all your profit come from the same source. This way, even if one of the industries suffers catastrophically or you get laid off, you still have income. This is why the gig economy, or keeping two part-time jobs instead of one full-time job, is advantageous.
3. Get out of debt
Being in debt is more than just a financial detriment. It creates psychological pressure and has the potential to spiral out of control. A single loan can add a monthly credit payment to your list of expenses. This additional expense may be just enough to push you over the edge of not being solvent enough.
Another thing to remember is that debts come with interest. There, you’re not just paying for the money that you owe. Interest is the extra value that you never actually got to use, which makes it all feel even worse.
- So, how do you get out of debt?
The first solution that you have is to start with the debt snowball. This means focusing extra hard on your smallest debt and clearing it as soon as possible. To make this more systemic, you can get a debt snowball spreadsheet to know which debt you should focus on next.
Second, you can consolidate your loans. This way, you can lower your APR, replace several smaller loans with a single larger one, and even improve your credit rating.
Lastly, you can speed up your credit repayment by making deposits every two weeks instead of once per month. This way, you’ll repay your debt twice as fast.
4. Start being proactive
You can’t always wait for things to break or for supplies to run out to react. At that point, you’re probably scrapping to get enough money for this emergency fix or even taking a payday loan (which may have 300-500% APR). Either way, this has to stop.
The first thing you need is an emergency fund. This way, if you get sacked from work or meet a financial or medical emergency, you can handle it. The rule of thumb is to have at least three months’ income in your emergency fund. In other words, if you make $3,000 monthly, you should have at least $9,000.
You should also have a savings fund. Setting aside at least 10% of your monthly income will greatly contribute here.
The next thing you need is to buy in bulk and buy strategically. What does this mean? Well, toilet paper can last for a long time. So, if you have some coupons (couponing is also a good idea), why not use a limited-time offer to stock up? In the long run, these purchases save your household a small fortune.
5. Utilize the power of technology
Today, we live in an era where you can download a budgeting app and track your spending without too much manual input. You must scan a QR code from the receipt, connect your cards, and have all this data automatically uploaded.
You can also start paying online, thus drastically cutting down the cost of paying bills. According to some estimates, the processing of bills this way is 57% cheaper. You also don’t have to count the cash, double-check tills, and engage in the rest of the arduous routine.
Wrap up on Financial Independence
While you don’t need to have millions, you’re paving the way toward great affluence by taking the first step on a journey to financial independence. Still, this is a long road requiring great sacrifice. More importantly, you must increase your knowledge and develop healthy financial habits. While it sounds simple, none of it is easy.