Financial independence: The tips to get there

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To realize the dream of your own home, you need to conquer your financial independence. In today’s article we will take the step by step!

Many people claim to have the dream of achieving financial independence , but do they know what it really means to be financially independent? Stability is a comprehensive concept and can vary according to each individual’s point of view, right?

For some, it represents the freedom to do whatever we want, like  buying a property, traveling more often, or simply having enough money to pay bills on time and live a quality, stress-free life.

What is financial independence for you? Being able to travel to any corner of the world? Buy what you want? Not needing to have a steady job for the rest of your life?

Many people have, at some point, had the dream of not having to worry about money anymore. In practice, that’s not quite how financial independence works, but still, it’s certainly a goal for many of us.

What is financial independence?

Some experts claim that financial independence is achieved when your earnings are greater than your monthly expenses. For others, the term is used to define who has a balanced budget and enough reserves to live off them, without depending on a job.

This is the essence of financial independence: achieving a good reserve that, applied to the right investments, will give you the necessary returns for you to maintain the lifestyle you would like.

Types of financial independence

There are four main types of financial independence, and it’s important to know which one you want to achieve in order to draw up the best strategies.

short term independence

It means having enough money to live without your paycheck for a while. This period can vary from a few months to a year.

At this stage, it is essential to have an emergency reserve , which is important so that you do not get into debt in the event of an unforeseen event – ​​such as job loss, a car crash, illness…

debt independence

Nothing holds back your personal finances more than debt. Therefore, to reach this stage, you need to have your budget up to date so as not to spend on high interest rates and installments.

job independence

At this level, you already have more freedom within your financial life. In employment independence, if your main source of income is lacking you will still have a second source of income.

This will ensure more peace of mind for your budget and for a longer period. This extra income can come from some investments, for example, but you must have already evolved on this journey.

total financial independence

Here you no longer have to work for money. You can live off the income from your investments and can afford the month’s bills with peace of mind. In addition, it manages to reinvest part of the profits to increase its equity and perpetuate this financial security.

How to calculate financial independence?

Some experts recommend that, after mapping your expenses, you determine an ideal salary, multiply by 12 months and divide by the real interest on your investment. The total of this account is the amount you must reach to be financially independent.

How to be financially independent?

To achieve financial-independence, you need to know your budget well. You know those small expenses that at the end of the month consume a good part of your salary? It’s time to map them to know where it is necessary (or possible) to cut.

Likewise, it is important to know the current stage of your financial life. That is, knowing well the moment you are in, it will be possible to draw up an effective plan.

Remembering: many people do not have the privilege of being able to make effective cuts in their budget. But even when that’s not possible, following these steps will help you organize your finances and ensure your debts don’t grow too much.

Regardless of your perspective on the subject, below we will show you a series of useful tips for you to organize your finances and make the dream of achieving financial independence possible.

1. Do you know what it means to be financially independent?

The popular opinion about financial independence is that this threshold is reached when financial income is sufficient so that it is not necessary to have a job to support yourself.

In this context, the term is related to the idea of ​​living off retirement or income from some type of investment, such as renting  one’s  own property , for example, representing the freedom of choice to work on what you want and enjoy the fruits of your life. invested money.

It is very common that, after achieving financial independence, people use their earnings from income to further increase their wealth.

From the moment you manage to accumulate good financial reserves, properly applied to generate satisfactory returns, it is possible to live the life you always dreamed of.

However, it is worth remembering that financial independence can have other meanings depending on the perspective. For example, for some people, it means buying the latest smartphone without having to satisfy someone else. What is your definition of financial independence?

1.1 What are the benefits of achieving financial independence?

  • More stability — stability is synonymous with having a peaceful life and not worrying about making money to pay off debts.
  • Better quality of life — when you achieve your financial freedom, having a better quality of life becomes just one of countless positive consequences.
  • Less stress — imagine being able to sleep peacefully every night without stressing about the bills that are due.

2. Step by step to achieve financial independence

Achieving financial independence is not a simple task and requires a lot of discipline, planning and wisdom. Below we will show you a step-by-step guide to organize your finances and ensure your autonomy and stability.

2.1 Make a financial plan

Undoubtedly, one of the most important steps to be taken is to structure a  consistent financial plan  , in order to make your money over every month. After all, only if there are resources left will it be possible to make the dream of financial independence possible.

Remember that in order to enjoy a comfortable life, you will first have to learn to plan your spending. You have to learn  cheap ways to have a rich life.

What we mean is that you don’t have to eliminate going to the restaurant every now and then, but that you should avoid eating out every day. The keyword is moderation.

2.2. Better control your money

After getting financially organized, it is essential to learn to control your money in a conscious, responsible and sensible way. That said, keep your finances up to date by carrying out effective controls for spending.

If possible, use technological solutions to streamline this process, such as a personal finance management application. These pocket tools are quite versatile, but they deliver what they promise as long as you have the discipline to record all expenses and cash inflows for the month.

If you are the “old guard” and prefer to do this control in a more traditional way, no problem. Use a paper spreadsheet to control your financial life and improve your decision-making process.

2.3. learn to save

As much as you have reached a certain social level and consider yourself self-sufficient, if you don’t know how to save money, your financial life tends to stagnate.

All the more reason for you to plan well about your finances and know exactly where your resources are going each month. Depending on how you handle your money, you tend to be closer or further away from the dream of financial independence.

2.4. Start investing your money

If you learn to save money, the next step is to invest so that your assets appreciate and generate income. For this, consider investing in stable assets, such as i movables , for example.

The stock market is very promising, but it is very important to do a lot of research before making the decision to enter this endeavor. On the other hand, investing in real estate with the intention of generating income proves to be a great option to walk towards financial independence.

In short, consider investing in the purchase of assets that, instead of generating more costs and depreciating over time, are valued and have a high potential for return.

2.5. avoid getting into debt

Unfortunately, indebtedness is a reality for a large part of the population. And some of the practices that lead so many people down this path is the use of credit cards to buy consumer goods or on unnecessary occasions.

In addition, people have a bad habit of taking out financing in order to pay off debts or to buy cars (which are assets that generate expenses instead of income). In this context, to achieve financial independence, it is necessary to get rid of all debts and avoid making new ones.

If your situation is very bad at the moment,  organize debts  according to how late they are and by interest level. Pay the most emerging first and negotiate as much as you can to get discounts and better payment alternatives.

3.1. Have a financial reserve

Some call it an emergency reserve or a financial reserve, but regardless of the term used, the fact is that having an amount saved to use in unpredictable and emergency situations is very important when you decide to go after your financial autonomy.

After all, if aspects such as an unplanned expense or job loss are reasons why you need to resort to financial help from a third party, it means that you have not yet achieved independence, do you agree?

So, a good cash reserve should contain enough so that you can cover three to six months of all your usual expenses. The amount of savings will depend on issues such as the financial risk of your occupation or profession and your monthly expenses.

For example, if you are self-employed or starting a business, you must prepare and anticipate financial difficulties and crises, and therefore your emergency reserve must be more substantial.

3.2. pay your debts

As already mentioned, avoiding debt is one of the best practices you should adhere to on your path towards financial independence. So it is very important to get rid of as much debt as possible.

Avoid at all costs generating expenses with overdrafts, loans and credit cards, as the interest charged is very high and can put you in a financial “limbo” from which it will be very difficult to get out later.

To escape default, define your goals clearly. Think about what goals you would like to achieve in the next few years, like owning your own home  or taking that dream trip. So, be disciplined, eliminate unnecessary expenses and pay your debts on time.

A useful tip is, whenever possible, to pay in cash to avoid interest and even get discounts. If you are already in debt, do some financial planning, negotiate more affordable payment methods, and pay the most overdue and urgent bills first.

3.3. Learn to spend wisely

Who doesn’t end up making one or two impulse purchases from time to time, right? The problem is when it becomes a habit. If you intend to achieve financial independence, it is important to learn to spend wisely.

We live in a society that encourages unbridled consumption. We are constantly influenced by the media to buy superfluous items with little durability. And brands contribute to this, causing products to go into obsolescence shortly after being launched on the market.

To avoid these pitfalls, learn to think twice before buying something. Be aware and analyze if you really need to purchase a certain item at the moment. Ask if a purchase will not make you go into default. Draw a parallel to ascertain the cost-benefit of the acquisition.

If you come to the conclusion that buying the product is really necessary, be sure to do thorough price research and, if possible, get discounts. Please note that payment must be made in advance.

3.4. Spend less than you earn

As obvious as it is, most people don’t know how to put this into practice. According to a survey carried many households have at least one person who has  expenses above their financial income.

According to this same survey, one of the factors that contribute to people spending more than they earn is the desire to live in a standard that is not compatible with what their income can support.

Pursuing social status and trying to maintain it through appearances — by acquiring expensive objects — is one of the worst ways to manage your finances. This only makes the default rate increase and the dream of financial independence becomes increasingly distant.

Before you invest your money in buying a luxury product, like a car or a beach apartment, consider whether your spending on these items will not disproportionately affect your monthly budget.

3.5. Set goals and objectives

Managing your money can be a very complex and even painful task if you don’t feel motivated to do so. After all, it is common to live focusing only on the present, do you agree?

7 steps to setting your goals and achieving financial success

However, as someone who has the objective of achieving financial autonomy, it is important that you get used to living with goals and objectives.

Conquering bigger dreams and enjoying a peaceful life, financially speaking, is something that may require some sacrifices, especially superfluous acquisitions that do not help you to achieve your purposes in the future.

In addition, setting goals is one of the best ways to keep motivated during this great endeavor that is the path towards financial independence.

4. Conclusion

As you can see in this guide on how to achieve financial independence, most of the tips involve knowing how to manage your finances intelligently and with common sense.

It is necessary to organize the inflow and outflow of money, separating monthly bills and income. Then it is necessary to learn to avoid unnecessary expenses  and, whenever possible, save your earnings.

Finally, it is essential to study ways to invest the accumulated money to generate income, accumulate wealth and, finally, achieve the dream of financial independence.

Among the most profitable types of investment, we can mention the  purchase of a property  with the objective of living on income or reselling when the property appreciates.