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7 tips to gain your financial independence

5th December 2018 Print

Having financial independence should be the end goal for anyone at the end of their working life, but that's harder to achieve for some than others. Financial independence means you no longer have to work to maintain your standard of living. It means you can do whatever you want with your time. Take a look at these tips for gaining your own financial independence.

1. Take Control of Your Money

You can only gain financial independence once you have full control over your money. Set up a budget that adheres to the 50/30/20 method to allocate the money you make. That's 50% of money to essentials, 30% towards paying off debt, and 20% for discretionary expenses. Debt costs money every month to hold, so you should be paying any debt as aggressively as you can. Credit card debt is the most severe debt since it usually has high-interest rates. Use the snowball or stacking method to help you pay off this debt as quickly as possible. Student loan debt is another tricky situation because it can stack up and lead to huge payments. You can refinance this debt with certain institutions to get smaller payments, which could save you thousands of dollars in interest.

2. Get Rid of Expenses You Don't Need

After you've confronted your spending and see just how much you spend each month, it's time to start getting rid of stuff you don't need. Food is one category where most Americans overspend. Cancel any recurring subscriptions for gyms or services that you're not actually doing. These are luxuries and not necessary for you if you're already on a tight budget.

3. Increase Your Income

If you've gotten rid of all your luxury expenses and you still don't have enough money, you need to look at ways to increase your income. Increasing your income could mean switching jobs. Most companies only offer around 3% raise annually per year, while job hopping could net you 15% to 20%. Consider a side gig that can help you churn some extra cash. Driving for Uber or Lyft, babysitting, selling goods on eBay and Etsy. If you're striving to gain your financial independence, you should have more than one income stream.

4. Take Care of Yourself

It can be tempting to cut insurance out of the equation if you're a young, healthy adult. But having good health insurance and life insurance can go a long way to giving you peace of mind as you gain financial independence. Most Americans get derailed with debt from medical expenses. Unexpected burial costs are another common cause of debt. Those unexpected costs can be avoided by having life insurance. An insurance agent can help you decide on adequate life insurance coverage for your circumstances, but insurance should not be left out of your plan for financial independence.

5. Retirement Accounts

Retirement accounts can help you earn more on money you're already saving. Consolidating any old 401ks into an IRA can give you lower fees to pay, too. Most retirement accounts are tax-advantaged, which means you can maximize the amount you gain while minimizing the amount you pay in taxes.