Hello, Judy Copenbarger here. And we’re back with another financial article to help you achieve that life you’ve always dreamed of.
Today I’m going to show you how to become financially independent.
What is financial independence?
Financial independence, or FI for short, is a newer term that you may have seen trending in financial articles and discussed throughout the financial community.
The independence part of FI is the key here. And the goal is to become independent from the cycle of spending money and earning more money to enable that spending. This is the breaking of the wheel, the end of the saving cycle. And it’s commonly known as retirement.
How the concept of retirement has changed
The word retirement is less relevant these days because pensions and retirement plans are not as common as they once were. If we change our view of retirement to financial independence, it helps us accept a lot more responsibility for our financial future. We’re the ones that determine how much we would like to spend and how much we need to have saved for that ideal future.
If you read my other article: “How To Get My Finances In Order – A Step By Step Guide“, you can start with good money habits that will help you reach your financial independence even faster.
Also, if you enjoy learning how to grow your wealth, don’t forget to subscribe to my newsletter, to get the latest and greatest articles on saving.
Two examples of financial independence
Okay, so there are two types of financial achievements and I’ll let you decide which goal is more appropriate to consider yourself financially independent.
The first is when your total investments pay more than your total expenses. Put simply, if the net profit from your assets is enough to support your current lifestyle, then you have broken the cycle.
The other type of achievement is having saved up your yearly expenses multiplied by 25.
The magic number. This gives you 25 years of retirement.
Imagine your ideal retirement
Now my ideal retirement could be significantly different than yours. I could be content having a healthy growing garden while you might want a big house on a tropical beach.
No matter what your lifestyle, the key is to understand what approach you want to make.
Is this something you want now or later? Do you want to slim down your expenses and lifestyle now for a more luxurious retirement or do you want to live modestly, but with a little lavish here and there right now?
Your life doesn’t have to be this or that either.
Many people live in a way that will sustain them throughout their retirement. They know what works for them in the longterm and find a balance between enjoying what they have, and knowing they will be content for the rest of their lives.
All of our articles show you an important aspect of how to be financially independent, (FI), and provide steps you can take to get closer to that goal. So part of your homework is educating yourself on what you need to know to manage your finances in a disciplined way.
Actionable steps you can take to achieve financial independence
- Get out of debt
- Make paying off your existing debt your number one priority. Until you’re debt-free, your money isn’t truly yours.
- Establish a budget and savings goals
- Write out all of your expenses and subtract from your income. Determine exactly how much your lifestyle costs.
- Cut costs, wherever you can
- Start with non-essentials like subscriptions, eating out, and other entertainment activities. Re-negotiate your monthly bills through refinancing or calling your service providers. Don’t be afraid to ask.
- Invest and let your money grow
- Investing a percentage of your income as it grows to ensure that as time passes your invested money grows in value and works for you passively. Plan to invest long term for the best results and the least amount of risk.
- And finally, spend less than you make and earn more
- Always strive to improve your earning potential and professional value to increase your income every year. Do the best you can at work and live within your means. Honor your budget and choose a lifestyle that supports your retirement goals but also makes you happy.
Don’t do all the work yourself!
There are great retirement calculators available online. You tell the calculator how much your ideal retirement will cost yearly, your current age, and it will tell you how much you need to save in order to make your dream a reality.
I know that retirement can be a serious thing for you, and you want to be sure that you’re on track. Now that you have a clear idea of what it means to be prepared, and you have a method to determine what it will cost, I want to know in the comments below, what does your perfect retirement look like?
Let’s compare, and feel free to ask any questions you might have. As always, if you can think of someone who would like to know more about financial independence, don’t hesitate to share this article with them.
I’m Judy Copenbarger. And remember, you can do this.
All you need is some simple tools and they’re right here. You’re on your journey.
God bless and we’ll see you next time!
Judy Copenbarger is the Founder and President of Comprehensive Financial Services, based in Irvine, California.
She holds a Juris Doctor Degree, with a Taxation Emphasis, is FINRA Registered and maintains various Securities and Insurance Designations. Her professional expertise is in Estate Planning, Retirement and Education Planning.