01.08.2022
8 min read

Financial Independence: How To Reach It?

As Robert Kiyosaki says: “Financial freedom is available to those who learn about it and work for it.”
For each member of our family, financial freedom can have a different definition. 
For older generations, financial independence is synonymous with retirement. But nowadays, young people want to be financially independent early so that they can enjoy the last half of their life with their loved ones.
Financial independence is when you are no longer dependent on income from your main job to cover your expenses and reach your financial goals.
Another way to achieve financial independence is to have passive income streams such as real estate income, investment dividends/growth, or an online business.
Let’s talk about some methods of achieving financial independence, which will help pass that path in a correct and professional manner.

Calculate how much money you need to be financially independent

It’s no secret that any kind of planning helps to get everything done on time, thereby saving resources and finances.
The first step to achieving financial independence is to calculate and make clear divisions.
According to the 4% rule, we estimate that you can safely withdraw up to 4% of your savings/investments each year and never run out of money. It only works if you have good investments that generate at least 6-8% returns year after year. For a more accurate estimate, you can use a 3% withdrawal rate for the calculation.
So a reasonable range of 25-30 times your annual household expenses in savings/investment will give you financial independence.

Savings

Obviously, the more you spend each year, the more you need to save to become financially independent. So if your goal is to retire early or achieve financial independence at a young age, you need to spend less money or work more.
Our expenses tend to increase as our income increases. To achieve the goal, you need to pay attention to the “lifestyle current”.
Have the financial discipline to spend less than you earn. Keep your expenses in check and focus on the long-term goal of financial independence

Budget

Budgeting is important to most people. If you look at studies of American millionaires, 97% of them report that knowing where their money goes and what they do with it is extremely important to their financial success.
Put millionaires aside and calculate all your income and set a clear budget, where you get the amount of money and how much the final budget is.
This will help clarify the amount of savings and expenses.

Have the right support

If you are married, you will experience both relationship and financial stress if you do not have unity on the subject of money. Financial difficulties and disputes are the number one reason for divorce.
If you and your spouse can agree on what you spend your money on, then you also agree on your hopes, your dreams, your aspirations for your children, and how you want to live.
So it’s important that you and your spouse work together not only to create a budget, but also to have the discipline and unity to work together on all the small financial decisions you’ll make each day.
It’s another story if you are not married and manage all the money personally. In this case, start working on your own emotions or find supporters who will help you save and achieve all your goals.
It is difficult to have such a stable will power that will not allow you to spend more than the prescribed amount. In this case, it is unnecessary to take other steps: choose a bank card, on which you can use the added amount only after 1 year. Establish clear deadlines for the use of money, which will limit its unnecessary or excessive use.

Take advantage of the buying opportunities

If you want to get the most out of your investment, take advantage of the opportunity: “buy low”. Times like the 2008-2009 recession and the 2020 coronavirus pandemic could have offered opportunities to buy stocks and real estate at more affordable prices. 
In a panic, people want to sell quickly and get out of investments they consider risky. In that case, take the risk and buy those assets on the cheap.
You can take advantage of opportunities when other people miss them. Be smart and do your due diligence when evaluating your investments to make sure they are the right ones. Risk is half of the job, but calculated risk.

Don’t panic and sell out on financial independence

There are ups, downs and downs. If you stay in the market until the end, you will have a great time, although there are some times that can be scary.
The only people who get hurt in this situation are the ones who back out in the middle of the road. When the stock market is in turmoil, don’t panic and sell everything. Keep investing while stocks are on sale.
Over the past 100 years, the stock market has generally grown. When you invest in the stock market, you invest in companies and people. If the whole economy doesn’t explode at once, it will turn out that you are making a safe investment to put money in the stock market.

Avoid debts

Debt limits your choices. Debt equals risk. It prevents you from achieving financial independence. As bestselling author Chris Hogan likes to say. “The interest you pay is a penalty. The interest you earn is a reward.
“If you want to make your money work for you, you need to stop making it work for others. Get rid of debts. Lower those car payments, clean up the loans, and take full charge of your mortgage.
You’ll like the feeling of being debt free. When you look at your budget for the first time and nothing comes out in the form of payments, you will feel a deep sense of peace. After that, you’ll never want to go back to borrowing.

Find a balance between savings and spending

When considering financial independence, you should make a plan to spend some money on the things you enjoy. You can go crazy and live on $10,000 a year and it can be one of the fastest ways to financial independence. If that’s your plan, make it happen.
If you never set aside money for some fun things, you’ll have a hard time staying disciplined and on schedule. There is a balance between saving and spending, and you can find it.

Teach your children to be financially independent

What financial strategies are you planning for your children? They will form their financial habits by watching what you do. If you want to have children who will grow up to be independent and accomplished, then teach them all the secrets of being financially independent.
That might mean you’re not always buying the best and newest. That might mean giving up a few luxuries so your kids can start to understand what frugality looks like. These steps will slowly but surely teach children that saving, calculating, and managing their finances will help them grow as individuals and be financially independent.

Summary
Financial independence is a necessary, important and highly significant phenomenon for improving the quality of life. It helps us to fulfill all our goals, transactions and pleasures, just balanced.
Use these 9 rules and start building your financial independence.

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