It may seem like an easy term to understand, but the truth is that the concept of financial independence is quite subjective . For some, it might be buying what you want, when you want it. For others, it might be getting out of debt or not depending on their parents or anyone else to pay their bills. For you, it might be not having to have a steady job for the rest of your life, or simply having enough money to pay the bills each month.
The most important thing is to understand that you don’t have to be rich or wait your whole life to achieve financial independence. Regardless of the stage you are in in life, there are many habits that you can adopt in favor of your pocket, with the aim of achieving more financial tranquility to live without changing your quality of life and your pattern of behavior.
Another issue that needs to be taken into account when we talk about financial independence is that this does not necessarily have to do with your assets. Being financially independent or not has to do with the ability to maintain a standard of living , without depending on a job or someone else. Therefore, in addition to the concept of financial independence being subjective, the amount of income you need to achieve to consider yourself independent also varies according to your reality.
Know the types of financial independence
Still on the concept of financial independence, it is worth understanding that, basically, there are three types of financial independence . And you don’t have to reach one and stagnate in it for the rest of your life. The objective, in fact, is for you to move from one type to the next, as you increase your income and achieve more financial peace of mind.
Short and medium term independence
A good way to describe the first type of financial independence is talking about the emergency fund . Independence of course and medium term means having enough financial reserve to live on for a while, even if you run out of income.
Specialists defend that the ideal is that you keep saved, in an investment that is easy and quick to access, an amount referring to six months of your monthly expenses . However, only you can know what amount is really enough to give peace of mind for a certain period, in case you find yourself without a job and without a fixed income.
complete financial independence
And the last stage of financial independence is full financial independence, which is even more advanced than the previously mentioned type. In this case, in addition to maintaining their standard of living with income from investments, the person manages to reinvest part of the income , increasing their assets and even more their income. You can’t deny that, despite not being easy to reach, this is the ideal scenario, right?
In the context of this article, we will focus on the concept of independence from work, presenting, however, tips so that you can dream of achieving total financial independence. The goal is to help you invest your money and achieve income greater than your monthly expenses , being able to maintain your standard of living, even without having a job and a fixed salary.
What is the difference between financial freedom and financial independence?
Although financial independence is a factor that provides more freedom in life, the concept is not exactly synonymous with financial freedom. Being financially free, in fact, means having autonomy when it comes to money and being able to make your financial decisions , without depending on anyone.
Theoretically, a person doesn’t even need to have an emergency reserve to have financial freedom. The concept, in fact, is synonymous with being able to make choices with peace of mind, knowing that the organization of finances will not be harmed. For this, having the bills up to date and the balance between income and expenses balanced may already be enough.
It is worth mentioning, however, that financial freedom can be a momentary and fleeting situation. Even if you have a balanced situation now, which allows you to make decisions without compromising your finances, circumstances can change — this is what happens, for example, when you find yourself without your monthly income, without having an emergency reserve. In that case, you are no longer financially free and start to have big worries when it comes to money.
That’s why you need to move beyond achieving financial freedom by keeping your focus on achieving financial independence . And, be careful: the sooner you start worrying about it, the sooner you will be able to enjoy the benefits of being financially independent. Know more:
Is it possible to achieve financial independence while you are young?
In fact, the ideal way to achieve financial independence is to start saving and investing while you’re young, even if independence itself comes later.
You might even think that this is something for retirement , but it’s not quite like that. Time can be your ally, and when it comes to money, you can be sure of that. The sooner you start having financial organization , the easier it will be to achieve your goals.
Despite this, even if you have already left your youth behind, you can and should pursue your financial goals . Never think it’s too late to chase your dreams and peace of mind. The truth is that there is always time to strengthen your assets and invest in your financial well-being and your family’s future.
Do you need to already have money to achieve financial independence?
Who wouldn’t want to be born into Elon Musk’s or Mark Zuckerberg’s family, right? But the reality is quite different. For most of us, the only way to achieve financial independence is to start from scratch .
The good news is that this is entirely possible. Even if you don’t have a lot of money at the beginning and only have your salary for the month to start, you can dream of your financial independence and work towards it every day. As we said, the important thing is to start, have discipline and recurrence . Over the years, your money will grow with the exponential effect of compound interest.
Soon we will see some tips on how to get there!
Tips for achieving your financial independence
Many say that when young people are inconsequential and don’t think about the future. But this is not (nor does it need to be) an absolute truth. Everyone has their own relationship with money and it’s up to you to decide how healthy it will be or not.
If your goal is to have financial independence, you need to pay attention to some important points. The first step is to start saving and investing as soon as possible, avoiding the situation where your expenses are greater than your income — this account being positive, in fact, is the basic thing when we talk about financial life .
Let’s see now some tips to help you in this process!
Financial planning
Some things have no escape, it would be much easier to “sell a magic formula to make money”. But we know that in the real world things are different. So doing financial planning is the first step you should take towards independence.
Control expenses
This is an important point, it does not mean that you will never go for a walk or eat in a restaurant, for example. But keeping spending within budget is key in this process.
What you need to do to save money is to cut superfluous expenses , especially if they don’t fit into your budget. No putting everything on your credit card and hoping to be able to pay later.
Write down your expenses, analyze them and cut excesses.
keep a spreadsheet
It’s hard to make budget cuts when you don’t even know how much you earn and spend per month. So, make a spreadsheet and set a monthly amount to live well without having to go into debt.
Don’t make unnecessary debts
And speaking of debt, avoid impulse purchases . No buying 10 pieces of clothing just because they’re on sale, or going to the market hungry and picking up everything you see in front of you.
We’ve already talked about it, but it’s important to remember, no one needs to be the “cheap hand”, but spending like there’s no tomorrow is not a good choice for those who want to achieve financial independence.
Pay your debts
If you’ve already incurred debts before starting your financial planning, no problem, try to get rid of your slips .
Renegotiate overdue debts , and place those that are not overdue within the spreadsheet budget. Separate a monthly amount that goes towards paying off debts.
It has room for everything in life, leisure, culture, fun, and even buying some junk food. What is not worth is getting into debt and not knowing how to pay later. Everything is a matter of seeking balance between what is earned and what is spent .
Invest in your profession
Part of the reason people want financial independence is to work less or only at what they enjoy. All of this is valid, but to get there you have to work .
Whether in the job market or in financial organization, you will need to be aware of everything that happens. Being prepared, investing in your career with courses, college and anything else that is relevant, can help increase your salary .
