Financial independence, according to Wikipedia, is the status of having enough income to pay one’s living expenses for the rest of one’s life without having to be employed or dependent on others. In other words, do you have enough money to live without working? Majority of the population is a no. But if you are able to say yes to this question, then you have reached financial independence. You are not dependent on a job to financially survive.
First of all, do you want to reach financial independence? In my early years, I had no inclination about financial independence was or what the importance of financial management will have on my future. My focus was to graduate from college and start a career. For me, I didn’t think about financial independence until I was in my 40’s because it wasn’t on my radar and because no one had even taught me what that was. All I heard was that I needed to build up my credit score.
Regardless of whether you want to achieve or not achieve financial independence, one thing is for sure…you want to start good financial management early in your life. This will help you to establish good financial habits that will last you for life. Once you get an understanding what financial independence is, you should start preparing yourself for it. Even if you say it isn’t a priority, that’s ok. Your current priority could be to climb the corporate ladder, become an entrepreneur, pursue higher education, or something else. There will be a time that you eventually will stop working whether it’s because you reached retirement, forced retirement, early retirement, disability retirement, or other. When this time happens, you’re not going to want to think about how you’re going to afford food and housing. Train yourself early about financials and the importance of managing money. Again, you may not be thinking about financial independence now but one day you will be.
Second, how can you reach financial independence? If financial independence means living without being employed or dependent on others, where does your financial dependence come from? Are you able to make money without normal employment? There are ways of earning money and not have a normal 9-5 job which means you need to generate income elsewhere. Some examples are real estate income, interest income, and dividend income. Other income ideas can be labeled as Passive Income where things are arranged so that you continue to have an income stream.
Take real estate income as an example. You purchase a property and rent it out. Hoping that you maintain a renter who pays every month, you are earning income from your real estate property every month. Of course, this sounds easy but it’s tougher than you think. Read my personal experience with real estate investing.
Third, how do you know if you reached financial independence? That’s an important question and something to consider all factors when trying to answer this. Last thing you want to do is quit your normal job thinking you reached financial independence and realize you may have been wrong. Will you have enough income coming in for you to live your lifestyle whether it’s from passive income sources, investments, real estate, 401k, or anything else that brings in income? Have you eliminated your debt? If you’re able to live without your 9-5 income and have multiple stable income streams, take a look and assess your financial situation. You may be close to your goal.
Being intimate with your financials is extremely important to reach financial independence. If nothing else, the one thing I will express the most is to start training yourself early. You don’t want to see yourself working past retirement age because you don’t have enough financially. Start small by keeping track of your spending and set a budget limit. Small steps will lead to huge gains. If you are interested in following my journey, email subscribe to get alerts of latest posts or follow me on Facebook, Instagram, and Pinterest.
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