If there is one goal that almost everyone wants to hit in their lifetime it’s to become financially independent. Getting your finances under control is probably one of the most challenging things we have to go through in life simply because of financial illiteracy.
This is a problem both the young and old face. Luckily, MyFin offers guides to personal finances.
What Is Financial Independence?
In simple terms, financial independence is having enough income to live comfortably and pay your living expenses without being dependent on others. Some gauge it to being able to generate passive income without being employed.
When you’re struggling to get out of debt or pay off your credit cards, financial independence may seem like a pipe dream. Similarly, if you have children, you have to put through college and pay their living expenses, financial independence seems impossible. But, it is very much possible.
How To Become Financial Independent
Here are a few tips to help you build your foundation and get started with the journey towards financial independence;
1.Think About Life Outside Work
Work is vital because it offers us security and a steady source of income. However, it is time to start thinking about life outside work. You can talk about it with your spouse, partner, family, and even friends.
- Your interests
- What you’d like to do if you’re not working
- Hopes and dreams for your financial future
- Necessary future expenses
After that, you can set both short-term and long-term financial goals. This will help you become conscious of your finances and develop a financial plan to support you in the long run.
2. Eliminate Debt
Debt is an anchor that will hold you back from achieving Financial Independence. In a world of credit cards, overdrafts, soft loans, and spending more than we currently have, getting rid of debt is challenging but not impossible.
Start by determining how much debt you have in total. Calculate everything from credit card debts to mortgages. Remember, you don’t have to pay off all your debt at once.
You can come up with a monthly payment strategy. However, paying off consumer and high interests debts should be a priority.
Second, pay attention to your credit history and track your credit score.
3. Keep Track Of Your Expenses
61% of US adults don’t keep track of their expenses. This means that most people don’t have a budget. Lacking a budget encourages impulse buying and bad spending habits.
If you take a look at your last month’s expenses, you’d be surprised how much you spent on things that are not necessities. Finding out where your money is currently going will help you plan where your money should go in the future.
You can write down every transaction in a notebook, create a spreadsheet to enter different expenses or automate tracking with modern-day apps like Mint. Once you are aware of how much you spend, you can create a plan.
4. Increase Or Diversify Your Household Income
Consider how much you take home right now and the general household income. How can you increase your current income?
This can mean asking for a raise, advancing your education level to climb the ranks at work, or diversifying your income. You can diversify your income by taking a part-time job or generating passive income by investing, renting out space in your house, starting an online business, selling unused items to increase cash flow.
Everyone desires to be financially independent. However, the journey towards financial independence requires discipline, commitment, and consistency.
If you’re looking to diversify your income or increase revenue channels to achieve financial independence, you can always seek professionals’ help.
How Can You Increase Your Net-worth To Achieve Financial Independence?
To increase your net worth, you have to open up new income streams, majorly passive income. This will help you pay off your expenses, debts and even increase your savings to get to financial independence.
Can You Reduce Daily Expenditure Without Compromising Your Living Standards?
Yes. To reduce daily expenses without significantly affecting your living standards is possible once you cut down on unnecessary expenditure. By getting a hold of your ‘retail therapy,’ you’ll notice a big improvement in how much you spend.
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