For many people, true financial independence may seem like an impossible dream. However, achieving financial independence is more attainable than you might think, although it takes a lot of planning to make it happen. Committing to a financial plan with financial independence as the goal is the one aspect that separates those who are successful at achieving their goals and those who are not. When creating a plan, keep in mind that you should speak with a financial advisor for guidance. Read on for some tips that can help you on the path toward true financial independence.
Make a detailed plan
As humans, we are wired to think about the immediate future such as paying our recurring bills and achieving short-term goals like maintaining an emergency savings or saving for vacations Achieving financial independence is a little more involved than just creating a simple budget or keeping up with day-to-day expenses. A detailed financial plan tailored for financial independence will include projections that are years into the future. However, when true financial independence is the goal, it will take some re-training to plan for the long haul.
So, what does a detailed financial independence plan consist of? Consider the following points when developing your plan:
Assess your current financial situation
Consider where you are now financially and how far you are from your goal of achieving financial independence. Take into account each source of income and your current expenses, as well as those that you anticipate in the future such as college savings or retirement. You may find out that you are closer than you think.
Identify potential obstacles
For example, if you have an older-model car, you may no longer have to worry about a monthly payment. However, you may need to plan for the purchase of a newer vehicle or pay for costly repairs. By accounting for things that could happen later on life, you will create a buffer against anything that could derail your plans.
Consider your income
Does your current income allow you to conceivably achieve financial independence within the time frame that you’ve chosen? If the answer is no, then you need to reassess your earnings potential. This could mean taking on a second job, obtaining additional career training, or switching professions. Also, you should consider starting a revenue-generating business to supplement or replace your income.
Get out of debt
Debt is a huge barrier to achieving financial independence, so it’s critical to minimize and eliminate debt. Review your credit card balances, as well as home and auto loans, as these are usually the three biggest types of debt that people carry. In addition, you should create a workable debt reduction plan.
Ignore myths about financial independence
Many critics believe that financial independence is not possible for everyone, but only in rare cases is this true. The following are a few of the most common myths surrounding financial independence:
Myth: Some believe that the only way to truly achieve financial independence is to earn a high income, which is not realistic for most people.
Reality: Although it is generally true that earning a low income will make it extremely difficult to achieve financial independence, one doesn’t have to be wealthy to achieve this goal. In most cases, all it takes is some planning and lifestyle adjustments to get there.
Myth: You have to deprive yourself of the things you enjoy in order to achieve financial independence.
Reality: People who are new to budgeting and financial planning, in general, should be careful not to have an all-or-nothing mentality. When we start something new, it is common to go all out and to overdo it. Set small goals and work to achieve them before you set larger goals.
When planning for the future, consider how much money it will realistically take to maintain your lifestyle as you now know it. If you plan to regularly make large purchases, buy extravagant gifts during the holidays, or dine out nearly every day of the week, add all of those up when making a financial plan to see just how much money it will take to continue to maintain this lifestyle during retirement. You may find that some lifestyle adjustments need to be made to reach your goal.
The main question people ask when it comes to financial independence is, “Is this really achievable for everyone?” The answer is yes. Financial independence is a lofty yet achievable goal for nearly all people with varying levels of income, but the amount of work required to achieve this goal will also vary tremendously. The only true way to know what it will take to achieve financial independence is to realistically assess your income and goals and come up with a detailed plan.
Once your mind is made up that financial independence is important to you, then it’s time to get started. Even if you have never been on top of your finances in the past, it is never too late to start. Even if you do not achieve total financial independence by your self-imposed deadline, creating a plan and sticking to it will bring you that much closer to your goals.