Published in · 5 min read · Aug 4, 2021
Financial independence is defined as having enough assets to cover expenses for the rest of your life.
You don’t need to work for a living and you are free to pursue your passion or do whatever you really want.
A person who has attained financial independence usually survives on the money provided by investments.
Although five years is not a very short time to achieve financial freedom, yet a lot can be done in this time which will bring you much closer to financial freedom, if not complete.
Let’s take a look at all the steps to financial freedom.
1. Check your Current Financial Status
To start any journey, first, you have to understand where you are today. It is an important step towards achieving any objective.
To achieve financial freedom, you must first understand your current financial situation.
If your finances are messed up and you’re not keeping a good eye on them, it’s never too late to start.
Begin documenting all of your income and expenses next month to determine where you stand.
It’s okay to be disorganized. Even the most organized people started out at some point in their lives.
A smartphone app like Walnut can help you keep track of your income and expenses.
2. Credit Management
To be financially independent, one must have complete control over one’s income and not be bound by others, whereas debt imposes liability.
Debt is something that ideally should be repaid before a person’s income.
Debt lowers your monthly discretionary income, drains your savings and investments, and puts your financial health at risk.
Must pay off all current obligations within five years and not take any additional loans.
Although there are ways to make extra money through loans or, this only applies to people who have a lot of cash and a high level of financial IQ.
3. Spend Only On Essentials
Consumption can be blamed for the large increase in the average amount of purchases made by an individual over the years.
We shop a lot, sometimes more than we can afford. Few people shop at this time.
It wreaks havoc on your finances and leaves you with items you can never use.
Before buying something or a service, ask yourself if you really need it, or if you’re buying because you find it attractive, you need it, or for any other reason.
If you don’t need it, it is not worth the money as more of that money can be used and used to secure your future.
4. Increase Your Earnings
Financial independence is unlikely to result from saving and investing enough money simply by cutting back on expenses and living a modest lifestyle.
You should think about how you can improve your salary in the next five years to achieve financial freedom.
This may include taking on a second job, creating a side hustle, or requesting an increase in your current position.
If we were to give a definition, it would be the following:
Financial independence is the state in which you have the ability to make decisions about the course of your life without taking into account the money factor.
5. Invest According To Your Objectives
Everyone invests, but not everyone can maximize their returns due to a lack of strategy and effective goal planning.
Investments should be done strategically as per your financial objectives.
Over the next five years, you should first identify what all your goals are, how much money you will need to achieve them, and then start investing in suitable assets based on your risk tolerance and time frame.
Investing in any asset without proper planning can leave you feeling helpless when you need your money the most.
It is important to plan your investments.
Do a thorough study of all types of acceptable assets and invest wisely.
Achieving financial freedom over a specific period will depend heavily on your savings rate.
If you save more, you will have more money to invest and hence additional income sources, which will bring you financial freedom.
If you really want to make your dream of financial freedom come true, then this is the time to improve your financial IQ.
6. Generate Other Income Streams
OK, so you’re probably thinking, My debt is much more than my salary how can I pay it off if I don’t have enough?
If you want to achieve financial freedom, you must be prepared to shed some blood, sweat, and tears.
Your 9 to 5 job may not be enough. If so, you will have to intensify your efforts and look for work outside your current position.
Some experts recommend having seven different sources of income. If you work from 9 a.m. to 5 p.m. you’re down, with only six more to go!
Now you can divide your sources of income into two categories: active income (trading time for money) and passive income (money that can keep coming while you sleep).
When you turn your time for money, you are limited by the hours of the day. Here is some side business you can do to supplement your income:
Become a freelance writer by looking for opportunities to work as a virtual assistant for a business owner looking for employment at Upwork.
- Learn new skills and monetize them by taking online courses for entrepreneurs.
- Become a driver for Uber On Task Rabbit, you may get help with domestic chores
- Pick up the occasional, sporadic job on Craigslist, and much more
If you don’t have much time to commit to making money, you can concentrate on boosting your revenue streams with passive income, such as:
- Profitable content to be sold (blogs, ebooks, courses, webinars, audiobooks, podcasts, apps)
- Learn how to become an affiliate marketer.
- Buy and rent house
- Invest in stock options
Fortunately, all six of your income sources can come from a single source. For example, if you are an eCommerce master, you may be able to generate cash from seven different stores. Remember, you don’t need to start with seven streams You can work your way up to this over time.
Financial independence can help you take control of your finances and more importantly your life.
It’s about living within your means, being a little frugal, and making sure your money is spent on food, shelter, and, yes vacations (rest is important too, you know).
By using the financial independence recommendations in this article, you will be one step closer to achieving the financial freedom you deserve.
So take a look at your money, create other sources of income, and pay off that debt, and you’ll be debt-free in no time.
