One of my top goals in life is to reach financial independence. I technically want to be financially independent as well as an early retiree, but to make this post simple we will mainly talk about becoming financially independent.
Financial independence is when you earn enough income passively (such as through rental real estate or dividend income) to cover your expenses.
This way you can leave a job you dislike and pursue other passions in life such as spending more time with family, traveling, seeking a job you love, and more.
I want to reach financial independence so that my investments are working for me and earning me money. This way my future costs are covered and I’m still bringing in an income in case anything happens in the future.
Now, don’t get me wrong. I absolutely love life and my online business. However, I would rather be safe because you never know what may happen later in life. As you know, I’m a worrier and I would much rather be safe than sorry. Something medically may occur, the industry may change, I may change, and so on.
You just never know!
Even when/if I do become financially independent, I don’t see myself doing something too different from what I currently do now. I would mainly just like to have the option in case something does change in the future.
It’s all about freedom and flexibility.
This is why others may want to reach financial independence as well. Reaching financial independence can mean that you have the option to do what you want to do and not feel as bound by your financial situation. You can therefore feel free to seek whatever it is in life that you want to seek out.
Below are my six tips on how to become financially independent.
1. Cut your expenses.
Cutting your expenses applies to becoming financially independent in an important way.
By cutting your expenses, you may be able to reach financial independence sooner because you then need to earn less money each month to cover your expenses. If you are able to cut your expenses by $1,000 each month, that’s $1,000 less that you need to earn. It helps put you that much closer to reaching financial independence.
Ways you can control and cut your spending include:
- Stop keeping up with the Joneses. Buy only items that you actually need, not just because someone else has them.
- Create a budget. By creating a budget, you can see where you have spending problems, where you can cut back, and more.
- Spend less money than you earn. Too many people live paycheck to paycheck. This can lead to credit card debt, high interest rate loans, and more.
- Challenge your expenses. You may want to think about cutting out useless memberships, expensive things such as cell phones, and more. If you are looking for a cheap cell phone service, check out Republic Wireless. Republic Wireless has monthly cell phone plans as low as $5 per month. Read Saving Over $2,000 A Year With Republic Wireless Review.
Related article: How To Live On One Income
2. Reduce your debt.
Depending who you are talking to, someone may say they have good debt and bad debt, and another may say that any debt is bad. Whatever your case may be, you will want to eliminate any debt that is controlling your life in order to reach financial independence.
If your loan that has a 0% interest rate is controlling your life, get rid of it.
If your loan that has a 25% interest rate is controlling your life, get rid of it.
Reducing your debt will lower your expenses each month and will make it easier for you to have enough income and savings in order to cover your expenses each month. This goes along with #1 above, the less expenses you have, the easier it will be to make enough income to cover your living costs.
3. Make more money.
Working towards making more money is helpful when trying to reach financial independence because you can then have more money to put towards investments, and then those investments can make you money (discussed further in #4 below).
Different people like to become financially independent in different ways. Some increase their income by working side hustles, seeking promotions throughout their career, and more, all while keeping a job that they love. Others are fine with working a job they hate in order to increase their income quickly so that they can save more of their money.
I’m lucky in that I earn a good income doing what I’m doing. However, I will be honest and say that I could never work a job I absolutely hated for an extended period of time in order to retire or to reach financial independence earlier. I’d rather live life to the fullest because you never know what may happen in your life.
Related article: 75+ Ways To Make Extra Money
4. Earn passive income.
In order to have your income continually cover your expenses month after month and year after year after you reach financial independence, you will need to earn passive income.
There are many ways to earn passive income and I plan on taking part in many of the different ways. My main form of passive income right now is affiliate marketing but it’s not too passive due to the fact that if I just left my blog alone, my affiliate income from it would most likely take a nosedive. This is why I want other forms of passive income, as I would like to be more diversified with it.
For passive income you can invest in dividend paying stocks, take part in rental real estate, create a product that produces royalties and more.
Related article: The Beginner’s Guide To Earning Passive Income
5. Save your money.
Doing all of the above doesn’t help much if you don’t actually save any of it. You will want to save your money in different ways such as by opening a 401(k) plan, a SEP plan, investment accounts, investing in real estate, and so on. You will have to do your research and see what applies for your specific situation.
Below are some articles I found on other websites that may help you decide what accounts and investments you should have.
I highly recommend you check out Personal Capital (a free service) if you are interested in gaining control of your financial situation. Personal Capital is very similar to Mint.com, but 100 times better as it allows you to gain control of your investment and retirement accounts, whereas Mint.com does not. Personal Capital allows you to aggregate your financial accounts so that you can easily see your financial situation, your cash flow, detailed graphs, and more. You can connect accounts such as your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more, and it is FREE.
6. Still have fun.
Like I’ve been saying a lot lately, making sure you still enjoy your life is very important. You can still live a great life on a budget, so don’t think you can’t.
You still want to live your life to the fullest, but you also want to save enough money so that you can reach financial independence. It can be a balancing act at times but it can be done.
Just put your mind to it and you never know what may happen.
Are you trying to reach financial independence or early retirement? Why or why not? What advice do you have for someone who is looking for tips on how to become financially independent?
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I hope that next year I would become debt free and I can’t wait for it! I already have a budget and I’m trying hard to stick on it.
Awesome to hear 🙂
I’m still working on #3 and #4. I reckon I’ve got the others pretty much covered – especially the “Still Have Fun” bit. 🙂
Ramping up the income side of the equation is sometimes your best option to speed up the process. A sacrifice of time and energy for sure, but a worthy one!
Thanks!
Yes, definitely a worthy one.
Passive income is what I am after and I am still considering at the moment how I can achieve financial independence. What I am doing now to reach it are first to stay out of debt and second to save as much as I can.
Good job Jayson!
I’m pretty close and when my house is paid off I’ll be even closer! It can happen if you keep your eye on the big prize at the end!
Awesome Maureen!
Great tips! For the vast majority, the foundation of financial independence is reducing debt (#2). The quicker you’re debt free the quicker you can get to financial independence. IMO, debt and financial independence cannot coexist.
The ace in the hole = Earn Passive Income. Something I hope to start dabbling in! Thanks for the list!
Thanks Luke!
i have achieved independence and it’s a great feeling. For those who are young your greatest asset is time. You may not be able to save a lot but save what you can. Besides maxing out your 401K make sure you have non-qualified savings as well. That creates a lot of flexibility for you in generating passive income. Stick to it, you can do it.
Great job Jeff!
Great tips, Michelle! We are definitely working toward creating passive income streams and being able to retire early. Like you, I don’t think I’ll ever completely stop working though. I enjoy it too much and like that it keeps my mind active!
Our goals now are small – pay off our car loan, purchase a house, pay it off as early as possible and buy rental properties. Unfortunately, we’re totally in the waiting phase as we can’t get a loan until we have two years proven income (since we’re both self-employed). Once we hit that two year mark we have big plans for our own house and rental properties!
Yes, I always like a challenge so I always see myself doing something productive!
Yes, yes, yes, yes! The whole point of me blogging and writing more is to earn more income streams so that I can 1) pay down my law school debt, and 2) build wealth. It’s a process, and I think you lay it out very nicely here. Again, compartmentalizing is helpful to see the bigger picture, which I think helps keep things focused and simple. Great post!
Thanks Natalie!
Completely confident you’ll get there! 🙂
For me achieving financial independence is something that I will reach however really starting to come around to it being a process rather than an event.. If I were to focus on this and need keep in touch with friends, family, health, travel etc then it’d be hollow when I do reach it..
Having said that definitely a big one is focusing on budgeting however not be overly concerned.. Spend money when you go out without guilt but be aware of any purchases you make might make it harder to reach that goal.. Investing is another way to do this and calculating what sort of income you’d like
You’re tips are great too!
Keep up the awesome work 🙂
Thanks Jef!
Financial independence is a goal of mine as well. Paying off debt is my primary goal at the moment since I don’t want debt payments to control my finances. Anyone who wants to be financially independent should also work on investing, diversifying income and increasing their savings rate.
Good luck! I’m sure you will reach it.
One tip is to just make reaching financial independence a game. The other is to circle your calendar, and write out your goals of WHEN you plan to be financially independent. You’ll surprise yourself at how much farther you’ll go if you do!
Financial Independence is worth the hard work. I don’t know if anybody has ever regretted giving it everything they’ve got to be free.
Yes, making it a game and goal can really help!
I’m ABSOLUTELY shooting for early retirement. I don’t want to stop working one bit – I just LOVE the idea of not having to work if I don’t want to.
FREEDOM!
Awesome Will!
Good points! I notice a lot of people seem to get really hung up on the Make More Money aspect. They falsely assume that means “working more”. Thankfully things like investing and blogging have added thousands of extra dollars to my income every year. It pays to make a hobby out of things that can end up making you richer along the way.
Thanks!
I guess I define FI a little differently than you do. I consider FI to be when I don’t have any payments to make anymore and only need a small amount of money to live on every month. I want to independent from HAVING to work and that way I can work only if I choose or want. The steps you define are mostly all a part of my plan too. 🙂
I’ve never heard of that definition for it but sounds like a good one 🙂
Good luck! I’m sure you can do it.