Would you like to aim for financial independence? Of course! Who wouldn’t. Although financial independence seems like climbing Mount Everest, it is not an impossible goal! For that reason, here are 5 quick ways to start on your journey to Financial Independence FAST! It’s certainly a climb, but it doesn’t have to be impossible. Hopefully, these tips will give you some inspiration.
Step 1. Know Your Goal
Before you start climbing, you must know your goal. In this first step, you determine what Financial Independence means to you. At this point you will figure out exactly how much money you’ll need to become “financially independent”
How to Determine Your “FI” Number?
Financial Independence means different things to different people. Some people need just enough to cover basic expenses and don’t mind having to make a few cutbacks. On the other hand, some people want enough to live comfortably.
Yearly Spending Total divided by your Safe Withdrawal Rate (usually 4%)
For example:
- Yearly spending = $38,000
- Safe Withdrawal Rate = 4%
- Financial Independence Number = $950,000
Step 2. Calculate Your Spending
This is the section where you break down just how much you’re spending on a monthly basis. If you’re not used to seeing these numbers on a regular basis, it might be difficult to confront them head on. Although it may be a challenge, realize that this is the only way you’re going to move forward in your money journey.
Step 3. Determine Your Income vs Expenses
Here is the step where you determine exactly how much you have coming in. You can check your paystubs or direct deposit statement for an approximate idea of the money entering your bank account every month. Above all, the goal is to determine how much money is coming in.
What Do You Do Now?
At this point, you should have a rough idea of the money that’s coming in vs the money that’s going out. If your income is greater than your expenses, well done! That’s a wonderful place to be. However, if your expenses are greater than your income – don’t panic – you’re not alone. This is the point when you take a good look at what you’re spending and brainstorm ways to trim excess expenses. It’s an ongoing process, but it’s worth doing in order to take charge of your financial future and reduce your stress and anxiety over money.
More on how to reduce stress and anxiety over money here:
If you’re interested in more of my story, check out how I got myself out of credit card debt in this video:
How to Prioritize:
Before you do anything else, make sure you have a solid emergency fund! Some financial gurus suggest only carrying an emergency fund of $1,000. However, you may decide (like I did) that this isn’t enough to cover unexpected expenses. In this case, you might want to save a bit more. Regardless, the focus is on preparing for any unexpected expenses so that you don’t go into, or go further into debt.
Check out tips for building an emergency fund here:
Step 4. Make the Most of Your Money
Once you have a handle on your expenses vs your income, you can decide on your plan of attack toward Financial Independence. If you have outstanding debts, make a plan and actively start paying down those debts. However, don’t let this stop you from investing and allowing your money to grow. Again, some financial gurus advocate pausing your investments until debts are paid off. Other research suggests the value of capturing the power of compound interest as soon as possible. The main point is to make an active plan for your money that fits your goals and comfort level.
Step 5. Keep Learning About Financial Independence – Connect and Grow!
Make friends with the same Financial Independence interests and allow that community to propel you forward. Sharing experience with friends who share your goals will help you grow faster. Financial Independence friends will keep you motivated during the slow times and ideally be able to share in your victories along the way.
In summary, while the journey to Financial Independence might be a marathon, you can absolutely get started right away. Prepare yourself for a financial climb ahead, but know that the end goal will be worth it.