How to Prepare for Financial Independence

financial independence

We each want to have financial independence in our unique way. Some want to quit working at age 40. Others just want to retire at some point with a substantial nest egg. Being financially independent is one of my life goals. It won’t happen overnight, and it won’t be easy.

What is Financial Independence?

The “Financial Independence, Retire Early” (FIRE) journey is increasing in popularity. Those that follow the movement are making smart financial decisions in order to leave the rat race as early as possible. Being financially independent means you’re not beholden to a job or debt. Your money is making money while you sleep and you work if you choose. As blog posts and articles of the successes are shared, it appears to be a quick and easy process. While anyone can achieve their desired level of FIRE, it is not as simple as saving a little money every month.

Set a Goal

First, you must set a goal. This goal might be a dollar figure or a date. If you’ve always dreamed of sailing around the world, think about the best age to do so. If you want to quit your full-time job to pursue a vocation, figure out how much money you’ll need to save to cover your expenses successfully.

You can use retirement calculators to estimate a retirement age or a retirement amount. You can also use a savings calculator to determine your ideal interest rates. Knowing your desired return will help you narrow down investment options. A certificate of deposit offers a higher return than a regular savings account. However, investing in the stock market will probably provide the highest return on your investment.

Whichever you choose, make it apparent. Do this by writing it down where you will see it often. You can use a dry erase marker on your bathroom mirror. Alternatively, take a picture and make it the background on your computer, tablet, or phone. Create a vision board or dream journal. These items will help you visualize and manifest your goal.

Make a Plan

Second, make a plan. Someone once said, “A goal without a plan is just a dream.” You need to create actionable items to complete and the timeline to do so. Your plan will include steps such as pay off debt or open a brokerage account. If you’ve done those things, you might want to review your current investments. Are they diversified? Are you investing enough? Research ways to reduce your tax liability and increase your returns. If you’re all out of ideas, consider speaking to a financial planner or advisor.

financial independence

Additionally, consider your other passive income options. For example, you can rent your property instead of selling it to downsize. Hire a property manager to handle tenants and repairs.  Expenses for maintaining rental properties may contribute to your tax deductions.

Fix Your Habits

Third, look at your habits. Poor financial habits will shorten the duration of your retirement quickly. Depending on the patterns, you may not be able to retire at all. Living above your means, paying bills late, and ignoring your budget are all counter-productive. Also, you can’t wait until you’re wealthy to be good with money. You have to start where you are now and maintain discipline.

Make it Happen

Finally, make it happen. Executing your plan and newly formed habits are the only way to reach your goal. Thinking, dreaming, and planning aren’t enough. If it were, then we’d all be financially independent and retired already.

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