Many people strive for financial independence. Being financially independent means, you can pay your expenses without having to work. Of course, you can still choose to work or not, but you can meet your financial obligations without income from a job. Knowing how to achieve financial independence, however, is the key.
Take Stock of Where You Stand Now
The first step is to take stock of where you stand now. Add up how much you have in savings, retirement accounts, and investments right now. If you run a business, assess the viability of your company. Think about these six signs that it's time to close your business and move on:
- Your revenue projections are consistently falling short.
- You don't feel as invested in the business anymore.
- Your health is suffering.
- You are losing key players in the company who you rely on.
- Customer interest in your product is dwindling.
- Slowing down or temporarily shutting down the company isn't an option.
If your business has become a drain on your finances rather than an asset, it may be time to consider shutting down your business gracefully so you can focus on a plan to become financially independent. You don't necessarily have to sell your business to become financially independent. You may be able to sell off valuable assets and extricate yourself from the financial burden while refocusing your efforts elsewhere.
Design Your Ideal Lifestyle
The next step is to think about what your ideal lifestyle looks like. How do you spend your days? Where do you live? What does financial independence look like to you? The more extravagant the lifestyle, the more you will have to make and save to achieve that financially independent lifestyle. The more minimalistic your lifestyle, the easier and faster it will be to achieve.
Calculate Your Expenses
You need to figure out exactly how much money you will need to support your new lifestyle. Use the last 6-12 months of expenses, bank, and credit card statements to calculate all the expenses for your new life. Don't forget about health insurance and withdrawal fees from tapping into retirement accounts or capital gains from the sale of property or investements. Also include hobbies, recreational costs, and shopping habits into the mix. You need an accurate picture of how much money you will need to support yourself comfortably.
How Much do You Need?
You can find various savings calculators online to determine how much you need to save to achieve your goal of financial independence. You can model different scenarios and try out aggressive saving plans versus slower growth options. Remember to include any income from investments, retirement accounts, and social security.
Create a Plan and Execute It
Once you have all your information together, you can work with wealth experts to develop a solid plan for getting you where you need to be so you can enjoy early retirement and financial independence on your schedule.