Chances are if you're reading this article you just recently heard the term “Financially Independent” for the first time OR you're currently in the pursuit of going after financial freedom.
Let me in on a little secret:
You can be financially free. You can have financial independence.
That being said, a few years ago I will personally share with you that I had never even heard the term financially independent.
Financially independent, retire early – also known as the FIRE movement – has gone from relatively unknown to the mainstream in a hurry thanks to the likes of blogs like Mr. Money Moustahce, Physician on FIRE, and even social media handles on Instagram.
Books like one of my favorites, Finacial Freedom – A Proven Path to All the Money You Will Ever Need, even share the play by play to accomplishing the goal of financial independence.
By design, financial freedom starts with your definition of the term. Does financial freedom mean you live off of your investment returns, or does it mean you are debt free?
You can be financially free and work a job, or you can not work a job. Either way, all of the choices when it comes to financial freedom are yours. But how do you start?
Today we will look into the meaning of financially independent and explore some of the ways it's possible to achieve financial independence and freedom… or at the very least get you started!
What is the definition of financially independent?
Similar to most concepts, financial indepedence is a very abstract idea.
There is no literal black or white translation because truthfully financial independence is very gray. The meaning of financially independent varies from person to person but in general, it is typically viewed as the following (or close to):
Financial independence is when someone is not restricted by a job or money. They have the ability to make decisions without money controlling these descions.
Further, being financially independent means having enough income (typically through controlled streams of income or passive income) to afford a lifestyle and pay for reasonable expenses.
The meaning of financial independence is different for every person, for example, my personal take on the subject:
- Debt free, enough money to live off of in case of an emergency for at least 2 years, the ability to travel and give what we want.
Wealth is not what is in your bank account, an abundance of time is wealth, in the eyes of the FIRE movement. Most financially independent retire early people cherish their time and this how they start achieving their independence.
And that starts with defining financial independence in your eyes!
How to Start Living Financially Free
Achieving financial freedom starts in the eyes of the beholder.
Take for example this screenshot below, where I asked a my Facebook Group what it meant to them to be financially free:
As you can see living off assets, becoming debt free, and whatever were just a few answers!
While most financial goals, for example saving $6,000 is very exact, specific, and obtainable – when it comes to financial independent it's more of a concept.
It is more lifestyle design.
A lifestyle design that can be harder to develop if you're new to the financially independent movement!
To help, here are some common ideas and questions to consider/think about as you begin to create your personal meaning of FIRE:
- Having long term goals – what are yours?
- If you keep doing what you do right now for 20 years, what will you sacrifice?
- Operating below your means, what does that look like?
- What do you really enjoy when it comes to time?
- Avoiding comparison financially, is that something you can easily do?
- Are you someone who makes money complicating or is it simple in your eyes?
- Can you stay steady and delay gratification for 2-10 years?
9 Tips to Start Becoming Financially Independent:
I am not financially independent – YET!
The first goal for us was to knock out our $300,000+ in student loans, we did that in the summer of 2020. Along the way, we created financial habits that helped us increase the likelihood of financial independence.
There are different types of FIRE movements out there, from Fat FIRE to COAST FIRE, but in the end we just want to have options, so here are some tips to help you get started (it won't happen over night):
1. Read More About Financial Independence
Reading is essential when it comes to changing a behavior or situation.
Expand your mindset and grow daily by making reading books like:
- Millionaire Next Door
- Rich Dad, Poor Dad
- Financial Freedom
- The Simple Path to Wealth
Make reading at least one book about money per month part of your daily routine. Reading will help expose you to the concepts and ideas that suit you and your financial goals the best!
2. Focus on Making More Money (Passive & Active)
The most overlooked and least talked about aspect in any financial circle is this:
You need to make more money if you want to hit your goals quicker.
Most who have achieved financial freedom/financial independence or who are close have created passive income streams. Passive income is typically vital for financial Independence so you can live anywhere and take advantage of geoarbitrage!
However, you often have to work towards passive income by learning ways to create active income outside of your 9-5!
Passive Income Ideas:
- Investing (individual stocks, index funds)
- Maxing out retirement accounts monthly
- Rental properties
- Blogging (Learn how to start a blog here)
- Stat an online marketing business
3. Invest in Yourself
Do more for yourself. Learn to improve daily. Listen to podcasts and audios.
Health, mindset, and faith, can have a lasting impact well beyond your day to day activities. Sell out to your own dreams and goals the chances of reaching financial indepdene increase!
Sometimes this may be viewed as a “Me first” mentality, but ultimately other's opinions don't pay the bills.
You must be the change you want to see!
4. Cut Out Excess, Get Thin!
That isn't just a fitness term, its a financial term.
Most financially independent people will tell you they prioritized their spending. you will want to do the same.
You will never hear me say cut out the lattes, because I believe you can simply just increase your earnings and you can keep your lattes (earning income is exponential, saving is limited).
However, you will want to cut out high spending areas to save more, but also limit distractions!
5. Find a Mentor Who Has Done It!
Finding the right mentor for what you need is invaluable.
For example, if you want to create a rental portfolio, you need to find 4-5 people who have rentals and get your questions answered. Hound them!
Always be a fruit inspector. Never take advice from someone who does not have the fruit on the tree so to speak.
Remember, mentors can consist of health, mindset, spirituality, and life coaches. Mentors will tell you the things your friends sometimes won’t – usually that things you need to hear!
But if the goal is financial independence – you will want to associate with those with similar goals!
6. Think Long Term
Delaying gratification and thinking long term boils down to daily behavior.
To become financially free you will want to think long term and not in the now. A simple way to do this – ask yourself every time you do something, “Is this getting me closer to my goals?”
7. Pay Yourself First
This is a very simple concept, but it is vital to becoming financially indepedent:
- Get paid
- Pay yourself (Pay off debt, save, invest)
- Pay bills
- Spend last
Most adults take their paycheck and do it in the wrong order, never giving themselves a shot at saving or reaching serious financial goals!
8. Increase Your Real Hourly Wage
Knowing your real hourly wage could potentially be the “Master Key” to financial Independence, but learning to assess your real hourly wage and forgetting the traditional “Absolute Income” thinking.
At first glance someone who makes $100,000 per year makes more than someone who makes $50,000. In absolute terms yes.
But what if person 1 works 50 hours week and person 2 works 10?
That calculates to $40 and hour vs $1000 an hour – who's looking better now? Person 2 can now go spend time creating income streams for themselves that long term will pay off!
9. Increase Your Savings Rate by 1%
Since you're just starting out on your journey to becoming financially independent, something you will want to look at is the percent of money you save each month.
No matter what it is at, the goal is to increase it by 1% each month.
If you currently save $500 of your take home of $4,000, or 12.5%, next month you would want to save 13.5%. Each month increase this.
The magic number is to reach at least a 40-50% savings rate! This isn't so bad if you learn to create more money, spend less, and save more!
And while these steps won't guarantee that you will become financially independent, they will help you on your journey to get started!
Doing and knowing are two different things! To help you get going, try using this 10-day comfort zone killer challenge!
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $300,000 in student loans with his wife in less than five years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post, and many more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their newborn son, their chocolate lab named Morgan, working out, being outside, traveling, and helping others with their finances! In case you were wondering, Josh uses Personal Capital to track his net worth and his first investment account ever was an Acorns account 😎