Four Basic Steps to Becoming Financially Independent
January 9, 2019
Financial independence is something that almost every person on this Earth wants to have, but very few manage to achieve. Several misconceptions are circulating about the idea of financial independence that put a hamper on people’s willingness to pursue it, in the first place.
The most common of these is the misassociation between financial independence and living in luxury. Most of us don’t see ourselves ever owning a private jet, yacht, or mansion. And because of the wrongful association, many don’t take the idea of financial independence seriously.
Being financially independent isn’t about having more wealth than you’d know what to do with. It’s about living comfortably on your savings and investments and without crippling debt hanging over you. With some careful planning and a bit of determination, many can reach this goal. Here are four necessary steps.
Financial independence is more of a state of mind than anything else. It is not something that will happen overnight, nor is it the same for everyone. Starting on the path of financial independence at age 20 will be completely different than at age 40. Regardless of age, you will need a fair degree of financial planning to which you will have to stick to, long term. You will need to allow for a certain degree of flexibility. Situations change over time, so your plan has to withstand both positive and negative changes.
Tackling Your Debt
Debt is the opposite of being financially independent, and as a consequence, it’s the first that needs to go. Start by making an inventory of all your debt, including car payments, mortgage, student and personal loans, credit cards, etc. Second, get familiar with all the terms, conditions, interest rates, payments, etc.
Once you’ve got your debt figured out you can begin to decide whether you would like to refinance or consolidate. Consolidation is excellent if you have multiple credit cards or loans as you could get a lower rate. Refinancing can also help you pay off your debt faster. It’s also wise to take a look into tax deductions and see if and where you can apply them.
Conscious Spending Habits
It’s no surprise that your monthly expenses play an essential part in your bottom line. It prevents you from paying your debts faster and achieving financial independence down the line.
The average US family, for instance, throws away roughly 25% of its food. It equates to anywhere in between $1,365 to $2,275 annually. A single energy efficient light bulb can save you $40 before it burns out. By adopting conscious spending, you can put that money to better use. And unlike budgeting, conscious spending allows you to retain the most value (and enjoyment) out of your purchases while eliminating unnecessary expenses.
Revise Your Income
Many people are under the false impression that a high-paying job equals wealth and independence. And while income is part of the equation, it’s not long-term wealth. To be considered financially independent, you have to reach a point where your necessities such as food and utilities are covered by passive income.
Passive income is regular cash flow that requires little to no time and energy to maintain. Investing in real estate and dividend-paying stocks are such examples. Royalties are another. The internet offers many opportunities for people to increase their passive income, such as starting a blog, a YouTube vlog, selling stock photos, or Kindle books, etc.
TakeawayAchieving financial independence is a long-term process, there’s no denying it. These four necessary steps presented here will get you on the right track. Invest in your financial education, and you will not be disappointed. And if you are in need of a loan, stay away from payday lenders and always read the fine print. Illinois Lending Corp is at your disposal. Apply here today or contact us at 1.877.LOAN.195