If finances stress you out, rest assured you’re not alone. A 2020 study found that 90% of Americans reported feeling stressed about money. Worrying about money may be common, but it can also have many adverse effects. Financial problems are one of the leading indicators of divorce. In addition to relationship problems, money stress can lead to physical health and mental health issues.
So, what’s the solution to make your money problems go away?
If you’re not winning the lottery today, your best bet is to become financially independent.
If that term is new to you, we’re here to help! This guide answers everything you need to know about financial independence, so read on to find the answer to your money stress.
What is Financial Independence?
Financial independence is having enough money to cover all your current living expenses and future costs to the point that you don’t have to worry about money ever again.
The definition is a bit abstract because financial independence can look different for different people. Ultimately, it means having enough money to not feel limited or controlled by money when making decisions.
The Benefits of Financial Independence
There are many benefits to being financially independent. Some of those benefits are:
1. Reduced Financial Stress
As we already mentioned, money problems can lead to a lot of stress. Achieving financial independence means you have enough money saved up that you don’t have to worry about your finances.
This goes beyond being able to grocery shop without looking at prices. It means you know you can afford a new car if yours breaks down, you can afford unexpected medical expenses, and you feel set for retirement.
Less financial stress will likely make you happier, physically and mentally healthier, and give you peace of mind.
2. Flexibility and Freedom
The term is financial independence because you’re working towards freedom. Most of us feel tied down to our jobs because we have bills to pay for and need to save for the future. If you’ve achieved financial independence, you no longer rely on your job. This doesn’t mean you have to – or will – stop working. But, if you hate your new boss or become bored with what you do, you can quit without worrying about your finances.
3. Early Retirement
The average retirement age in the U.S. is 65 for men and 62 for women. However, if you achieve financial independence, you can retire much earlier. Many financially independent people choose to retire early, go down to part-time work early, or quit their jobs and follow their passions.
4. Build Generational Wealth
If you have family and loved ones you care about, you likely want to give them every advantage possible. Generational wealth greatly benefits younger generations, giving them the financial leg-up to get ahead in life. If you achieve financial independence, you’re likely setting your family up so they can also be financially secure.
Achieve Financial Independence With These Six Habits
So, you’re probably wondering how to get to financial independence. We’ll be honest: it’s not easy. Otherwise, everyone would do it! It takes serious dedication. But, if you commit to the journey, there’s a good chance you can achieve your goal of being financially independent.
You can start the process today by following these six tips:
1. Budget
The very first step you should take is to set up a budget. You can only get to a stable place with your money if you know where your money is going. Budgeting can feel very overwhelming if you’ve never done it before, but you can break it down into three easy steps:
- Review and categorize all your expenses from the last six months. Do this by downloading the statements for your credit cards and bank accounts.
- Find a free budget template that you like online.
- Input all your expenses and paycheck details, and balance everything out so you’re happy with what you’re spending versus what you’re saving.
2. Reduce Expenses
Once you set up a budget, you can focus on reducing expenses. Bringing down your everyday cost of living will help you pay off your debts quickly and then focus on saving and investing.
Your budget will highlight areas where you can cut unnecessary costs. Some ideas for reducing your expenses are:
- Getting rid of subscriptions (such as Netflix, Amazon Prime, Audible)
- Cut down on eating out and opt for cooking at home more
- Stop paying banking fees
- Switch to a no-annual-fee credit card
- Buy used when you can (used cars, used furniture, etc.)
These are just a handful of ways you can save yourself money.
3. Pay Off Debts
You can’t achieve financial independence if you’re constantly in debt.
Debt typically comes with interest, and interest can be quite high. You should view money being spent on interest as money that could have been invested and saved for your goals.
First, pay off high-interest debt, like credit cards. After that, you can focus on paying off any car loans, student loans, and any other type of debt you have. People who aim for financial independence often set a goal to pay off their mortgage early. The sooner you can get your mortgage payment out of the way, the better.
Remember, you must pay more than the minimum balance to see quick progress when paying off debt. Make additional payments on your debt to reduce the principal balance at an accelerated rate.
4. Start Investing
Investing is an essential key to making your money work for you. And it’s important to start as soon as possible. The average stock market return of the S&P 500 is approximately 10% annually. So, the longer your money is invested in the market, the more it grows.
Often, people don’t invest because they feel that investing is only for rich people. But rich people get rich because they invest. It’s a crucial step to helping your money grow.
Luckily, you don’t have to sit down and learn about investing alone. There are some easy options out there:
- You could use a financial advisor at your bank to set up an investment account. Note this option will often come with high fees, but it would mean someone is doing all the work for you.
- You can use a robo-investor, which is a common option with digital banks. This option typically comes with less fees as it’s a robot rather than a human making the investment choices for you.
Either way, get started on investing today, even if it’s with $20.
5. Save Aggressively
People aiming for financial independence tend to save at an aggressive rate. If you can, aim to save 25% or more of your paycheck. One way you can make saving easy is by automating it. If you have savings taken out automatically from your paycheck the day you’re paid, you’ll never see that money and be tempted to spend it.
6. Become Financially Literate
The last step is to become knowledgeable about finances. You don’t have to be the next Warren Buffett, but having a grasp on basic financial concepts will help ensure you’re on the right track to improve your finances. You can start by listening to podcasts, watching YouTube videos, or reading finance books. There’s a wealth of knowledge out there for you to consume.
Your Future is Free of Money Stress
Financial independence is possible; you just have to have a plan to get there. Start today, and you’ll be surprised by how quickly you see progress. All that’s left to do is make a plan and stick to it!
You might also be interested in: The Top 11 Reasons To Hire A Financial Planner: Navigating Your Financial Journey With Expertise
