If you’re trying to become financially independent, it can be overwhelming trying to understand where you should start. After all, what if you don’t even have a credit card to you name? Luckily, we’ve assembled a helpful guide detailing the steps you’ll need to take to become financially independent. Keep reading to learn the ways you can create a strong financial foundation.
Step 1. What does financial independence mean to you?
Before you get started on the path to financial independence, it’s important to first figure out what financial independence means to you. Not everybody wants to be able to afford daily lattes or regular massages. Figure out what your financial priorities are and what you’re willing to give up versus what you’d like to keep. It’s important to take consider your age as well because being financially independent at 18 is going to be a lot different than being financially independent at 40.
Step 2. Track your cashflow.
Potentially the most important part of becoming financially independent is figuring out how to budget. If you feel like you like you have a good handle on what expenses you need to pay for, you might be surprised what’s actually eating up your budget when you sit down and actually track your cashflow.
It’s a good idea to look at your credit card statements and examine them for erroneous charges and other issues that you otherwise might not notice. One aspect of your finances you should definitely consider is your credit card’s interest rate. If you tend to carry a balance month to month, it’s a good idea to switch to another low-interest credit card. Check out Intuit Mint credit card offers if you need a place to start.
Ideally, if you have a high-interest credit card, you can find a new credit card with a 0% APR intro period and a low balance transfer fee (or 0% balance transfer fee). This will allow you to move your debt off your high-interest card and pay down your balance faster without worrying about more debt accruing month to month – at least while the intro 0% APR period is active.
Step 3. Spend less than you earn.
Another important part of becoming financially independent is spending less than you earn. You should put between 10-15 percent of your gross income in savings or invest it. If you’re living with your significant other and both of you work, you could try to save as much income as possible from one of your salaries.
It’s also a good idea to stick to a lower standard of living. While it’s fun to eat out and go and get drinks, make sure it’s a treat and not a regular habit. Going out puts you on the fast track to spending too much money.
Step 4. Get a side job.
Consider a side hustle if you feel like your job isn’t providing you with enough income so that you can live comfortably. For example, can you consult or freelance write on the side? If so, that can be a potential way to bring in more money.
If you don’t want to work more than you already do but you want to make more money, you could also consider getting additional training and certifications. You’ll need to ensure that these additional trainings actually put you in a different earning bracket before undergoing the extra effort, of course.
Step 5. Think small.
Do you live in an apartment with an extra bedroom you don’t even use? Did you recently invest in a new car? Both of these scenarios aren’t absolutely necessary for your well-being, so it would benefit you to downsize. Live in an apartment or house that fits your current needs. A new car is usually not the best way to spend your money, so consider buying an older model of car instead – just make sure it’s certified pre-owned.
If you’re ready to become financially independent, there are a few steps you should take before cutting off your financial support. First, you’ll want to assess what kind of lifestyle you want and create realistic goals. Then, you’ll need to assess your cashflow and examine what kind of debts you have to your name. And finally, you’ll need to create a strict budget so that you can appropriately monitor your cashflow. With the tips in this article, you’ll be on your way to becoming financially independent.