How Do People Achieve Financial Independence?
This post may contain Affiliate Links
Would you like to achieve financial independence? If it’s something you’ve been thinking about but aren’t sure where to start, this post takes a look at some of the different types of financial independence and how people go about achieving them.
What Does Financial Independence Mean?
Financial independence means generating enough money through passive income to cover your monthly expenses, without having to rely on a job.
While it may initially sound like a pipe dream, it is achievable. If you want to feel inspired to get started, then I recommend reading a financial independence blog or finding a community of like-minded people on social media.
Different Types of Financial Independence
When it comes to managing money, there are lots of different approaches to take, and financial independence is no different.
One of the most common types you may have come across is FIRE, which stands for Financial Independence, Retire Early.
Those who want to achieve FIRE will often dramatically cut back on their expenses and try different side hustles to earn extra income, both of which are used to invest in creating passive income.
Retiring early allows people to travel and pursue other interests while still young, rather than waiting for the traditional retirement age.
For others, they would rather create an income that covers more than their basic expenses to allow for a lavish lifestyle once they achieve financial independence.
On the other hand, there are those who would prefer to cut all of their expenses as much as possible, so that achieving financial independence is much easier and quicker as they need less money coming in to cover their living expenses.
First Steps To Achieving Financial Independence
Before you get started with financial independence there are three things you need to do.
- Pay off any debts (not including your mortgage).
- Figure out how much money you need coming in from passive sources to cover basic living expenses, keeping in mind the type of lifestyle you would like.
- Create a budget that allows you to invest and create passive income.
While your mortgage is a type of debt, it’s different to consumer debt. However, paying it off early should be part of your plans. Paying extra off your mortgage each month means it’ll be paid off faster, saving thousands in interest. In turn, that money can be put into investments and means your overall living expenses will be reduced.
Side Hustles
If there’s no room in your budget to start funnelling money into financial freedom, you may want to start a side hustle. Although some side hustles eventually create a passive income, for example, blogging, there are many that don’ and these shouldn’t be dismissed.
Extra cash from say, pet sitting or copywriting, could be added to your pension, used to help pay off your mortgage, or invested in dividend stocks which will ultimately help you to achieve financial independence.
Creating Passive Income
The next and biggest step to achieve financial independence is to create passive income streams that will eventually earn enough money to cover your living expenses.
This can take years to achieve and may mean making sacrifices and deciding what is important to you both now and in the future when it comes to what you do with your money.
As passive income can fluctuate, it’s best to have several different passive income streams.
Investing – Dividend investing is one way to really make your money work for you and see growth in the long term. Investments should be made for a minimum of five years and as with any type of investment, you could see losses as well growth.
Pensions – Paying into your pension early, and increasing that payment as when you can is a great step towards financial stability and eventual financial independence.
Digital Assets – Passive income from digital assets is a very popular way to make money. This could be from creating online courses, selling printables and advertising on websites.
Property – While you will need a considerable amount of cash upfront, property is a great long term investment and can be a great source of income from rental fees or holiday lets.
Royalties – Royalties can come from creating books, ebooks and digital courses.
These are just some of the ways you can start to earn a passive income, there are many more but these are some of the most common and most popular choices.
In conclusion, financial independence is definitely something that can be achieved, it just takes determination, good financial planning and an understanding that it’s not something that’s going to happen overnight.
