If you’re like most people, you’d probably like to have so much money that you never need to work again. In other words, you’d like to be financially independent. It’s a nice goal to have, but unfortunately many people dismiss the idea of being financially independent as a pie in the sky dream, especially if they already have a tight budget.
However, it is possible to achieve financial independence even if you’re not making hundreds of thousands of dollars each year by following four steps. It won’t happen immediately, but after a few years you will start to see results.
Set a SMART Goal
Financial independence is, at its core, a financial goal, and like most financial goals, you’re more likely to succeed if you have a plan in place to achieve it. That means making your goal a S.M.A.R.T. goal—a goal that is specific, measurable, attainable, realistic and time-bound. So if you’d like to be financially independent, you should think about:
- Specifics—How much money exactly will I need to save to become financially independent?
- Measurability—How will I be able to track my progress toward financial independence?
- Attainability—Am I sure I’ll be able to become financially independent?
- Realism—Is saving up the kind of money financial independence requires possible?
- Timeliness—How long will it take for me to achieve financial independence?
Create a Budget That Prioritizes Saving
Once you’ve solidified your financial independence goal, you’ll want to start regularly setting aside money dedicated to that goal. The best way to ensure that happens is by creating a budget.
Creating a budget might seem tedious, and to be fair it does require some work up front. Once you’ve created a budget, though, you’ll know where every dollar you bring in is going—and then figure out how to channel more money toward your goal of financial independence.
Build up Your Emergency Fund
While you’re saving for your goal of financial independence, you’ll also want to put money aside in an emergency fund. While this won’t directly help you become financially independent, it will help protect your finances if an emergency strikes. Even more important, it will help you avoid going into debt.
If you have six months of salary in your emergency fund, you’ll be prepared for almost any financial crisis, including being laid off. However, once you have even a couple thousand dollars in your account you’ll be able to weather most crises without having to go into debt or dip into the money you’ve set aside for financial independence.
Pay off Your Debts
One of the biggest things that can keep you from financial independence is debt, especially high-interest debt. Make paying off existing debts a priority. You may even want to make a financial category for paying off debts in your budget to get yourself out of debt faster.
Once you’ve gotten yourself out of debt, be careful about getting back into it. Learn the difference between good debt and bad debt, and make sure that going into debt will actually help you achieve your financial goals instead of dragging your farther from them.
Learn to Invest
Once you have a few thousand dollars saved up, you’ll want to start investing it. Investing your money and letting it grow will probably be one of the main ways you achieve financial independence. However, there are a lot of investment options available, and there is no one-size-fits-all investment strategy.
Before you start investing, you should learn as much about it as you can. Fortunately, there are a lot of resources available, such as YouTube videos, online learning courses, magazines and even financial advisors like RoundTable Wealth Partners. Once you start to feel comfortable about investing, you’ll be ready to create an investment strategy and start investing your money.
Once you’ve invested your money, though, make sure to keep educating yourself financially, and be sure to regularly review your investments to make sure they’re performing according to your expectations.
Achieve Financial Independence With First Alliance Credit Union
Financial Independence is a big financial goal that can seem impossible to most people. However, if you maximize your savings, invest your money wisely and stay out of debt, you’ll have a good chance at succeeding.
If you’re working toward financial independence, become a First Alliance Credit Union member today and let us help you on your journey. We have comprehensive, easy-to-follow guides to budgeting and saving in our resource center, as well as a S.M.A.R.T. Goals worksheet that can help you solidify your plans for financial independence. You can also store your emergency fund in a high-interest Money Market account or invest it in a CD or IRA.
Want more information? Listen to episode 77 of our Good Money Moves podcast, which talks about how to achieve your money goals.