Beyond paying off debt or saving for certain goals, financial independence is the ultimate aim of anyone interested in getting their money in order. It simply means you've reached the point where you no longer need to work for a living; you're getting by just fine with your investments and net worth. If you want to get there, focus on these five areas.
Photo by Gabbey Road J-Walker.
Financial independence is a little different from retirement. When you're retired, yes, you've become financially independent. But retirement suggests you stop working, whereas financial independence is just the point where you don't have to worry about money anymore.
Author Jonathan Chevreau talks all about this concept at his site, FindependenceDay. He tells Forbes the five "rules" for reaching financial independence:
1. Pay off your home in full. "That's really the foundation," he says.
2. Find multiple sources of income for retirement. These can include interest and dividends from your investment portfolio; rental real estate; freelance or consulting work; Social Security and an annuity.
3. Develop "guerrilla frugality" habits. Chevreau calls this "becoming a Frooger." Keeping expenses low while working full time will make it easy to live that way in retirement and reduce the amount of savings you'll need for a comfortable retirement.
"If you spend like a millionaire, you'll end up a pauper," says his book's protagonist, Jamie. "Spend like a pauper and you have a shot of becoming a millionaire."
4. Save 20% of your gross income. This will be impossible for many people, but not for others. If you can't save 20%, try for 15 or 10%.
5. Invest with a "Lazy ETF" portfolio. That means selecting, say, three exchange traded funds and holding onto them.
Easy? Hell no. None of these habits or concepts are easy to adapt or achieve. But financial independence is that simple. If it's something you want, you'll have to work for it, and it will pay to focus your energy on these five tasks. Check out the rest of the post at the link below.