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How to Make Financial Independence a SMART Goal

Chris Gottschalk

Chris Gottschalk About The Author

May 11, 2023 4:45:00 AM

If you’re a long-time reader of this blog, you’ve probably read a few articles about setting financial goals and achieving them. So you’re aware that when you make your goals SMART—Specific, Measurable, Attainable, Realistic and Time-Bound—you’ll not only give yourself the framework to achieve your goals, you’ll also increase the likelihood that you’ll succeed. You might also be aware that SMART framework can help you achieve any type of financial goal, no matter the size.

Today, though, we’re going to put that theory to the test. We’re going to see if the SMART goal strategy can help you reach one of the most popular personal finance goals online—financial independence, the state where you have enough passive income that you no longer need to worry about getting a paycheck.

How to make your financial independence goal SMART

young woman using SMART goals to achieve financial independence

Making Financial Independence Specific

This is the big question. How much income would you need to generate each month in order to be financially independent?

You can start to get an answer by looking at your current spending plan to see how much you’re currently spending. From there, you can start to consider how much your budgeting categories will change once you become financially independent. Maybe you won’t have to spend so much on gasoline, or maybe you’ll want to invest more in recreational activities.

If this weren’t complicated enough, you’ll also need to think about inflation. How much additional income will you need to bring in every year if you’re going to maintain your current lifestyle? Is there a point where you’ll need to earn more money to put into your investments?

All of this might sound complicated, and that’s because it is. You’ll need to put in a lot of time and effort in order to figure out how much you’ll need to achieve financial independence. However, you also shouldn’t feel like you absolutely need to get this number right the first time you calculate it.

Let’s be honest, achieving financial independence is a long-term financial goal, and for most people it will take at least a decade to reach. During this time, a lot of factors are going to change, from your expenses to your salary to the strength of your current investments. You’ll want to make a note to review how much you’ll need occasionally, at least once a year.

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How to Make Financial Independence Measurable

Now that you’ll know how much money you’ll need to be financially independent, your next step will be to figure out how you’ll track your progress towards that goal. Unfortunately, it’s not quite as simple as keeping track of how much you have in your savings account. Instead, you’ll want to keep track of the passive income you’re earning and figuring out whether it can cover 100% of your monthly costs.

If this seems complex, you can start off simply by figuring out what percentage of your monthly income you’re getting from your savings account. It will be pretty low at first, but it’s only a starting point, so don’t get discouraged. As time goes by, though, you’ll be generating multiple streams of passive income, like the kinds you’ll get from:

  • Stocks
  • CD Ladders
  • Mutual funds
  • Trusts
  • Online businesses

It’s worth repeating that this will take some time and effort, and you’ll have to recalculate how close you are to your goal in a few years when you reassess your monthly expenses.

young professional uses SMART goals for financial independence

Where will you get the Funds for Financial Independence?

So you know how much you’ll need and you know how you’ll measure your goal. Now all you have to do is figure out where you’ll get the money to start generating these passive income streams. Easy, right?

You can start by regularly putting money from your paycheck into a savings account. While many financial experts recommend saving at least 10% of each paycheck, you’ll want to increase that amount if you can afford it. Once you’ve set aside a few hundred dollars to your goal, you can start to invest in other options, such as CDs and stocks.

It’s worth pointing out that there are many ways to generate passive income streams. Like many other parts of this goal, you’ll have to put in some time and effort figure out what passive income streams you’ll want to pursue. You may even want to consult with a financial planner to help you decide which ones are best for you.

Is Financial Independence a Realistic Goal?

Once you have an idea of the steps you’ll have to take to become financial independent, it’s time to ask the hard question—it is possible? Can you take the steps you’ve set up to become financially independent with your current income and expenses?

If the answer is “no,” you’ll want to consider what needs to change in order to reach your goal. Maybe you need to get a job that pays more, or maybe you need to lower your current expenses so you can save more money. You might even want to consider moving to an area with a lower cost of living.

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Making Financial Independence Time-Bound

Finally, you’ll need to think about how long you’ll need to become financial independent. This is a long-term financial goal that requires a lot of money, so you’ll probably need to spend at least 10 years building up funds and passive income streams before you can reach your goal. If you’re demoralized by this, just keep in mind that almost every adult in America has the goal of being financially independent by the time they retire, and many of them have been working toward this goal for over 20 years.

If you’re trying to shorten this time frame, though, you’ll need to change some of the parameters of your goal. You might need to increase how much money you’re putting into your savings, find another way to generate passive income, or figure out how to decrease your expenses when you become financially independent.

Reach Your Financial Goals With First Alliance Credit Union

Financial independence is an incredibly ambitious goal. However, once you make it a SMART goal, you can start figuring out how much money you’ll need to be financially independent, how you’ll be able to tell if you’re making progress toward your goal, where you’ll get the money and whether or not you’re currently in a position to reach this goal.

No matter what your goal is, you’ll get help reaching it when you become a member of First Alliance Credit Union. We offer several types of savings and investment accounts, and we even have guides in our resource center that will help you do everything from get out of debt to help you start your own business.

Need more help prioritizing you financial goals? Take a listen!

We do our best to provide helpful information but we cannot guarantee the accuracy or completeness of the information presented in the article, under no circumstance does the information provided constitute legal advice. You are responsible for independently verifying the information if you intend to use it in any way. Additionally, the content is not intended to be reflective of First Alliance Credit Union’s products or services, for accurate and complete details about our product and service information you must speak to an advisor at First Alliance Credit Union.