Many of us think of financial independence as simply having enough money to retire. But it's much more than just leaving your job and stopping work. It's about planning, transitioning and making lifestyle changes that align with your personal goals and values. Let's explore four unique ways to think about financial independence and how you can take actionable steps toward achieving it your way.
Financial Independence As A Goal
Think of financial independence as a goal that requires careful planning and consistent saving to allow you to accumulate enough resources to last the rest of your life. Here’s how you can make it happen.
1. Set Clear Goals
Define what financial independence means to you. Is it retiring early, traveling the world or simply having enough to live comfortably without working? Next, be specific about your savings targets and/or timelines and how much you need to save to get there. Use a retirement planning tool to help you here. You typically have access to one with your current retirement plan provider, bank or broker.
2. Create A Budget
Develop a monthly budget that prioritizes saving. A great template to use is the 50/30/20 budget. Next, consider using budgeting apps like Tiller, Simplifi and Pocketguard to track your expenses and ensure you're meeting your savings goals.
3. Automate Savings
Set up automatic transfers to your retirement accounts. This ensures you save money consistently without having to think about it. Consider using the auto-escalating feature if it’s available in your employer’s retirement plan to automate increased savings every year, around the time you might get a raise.
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4. Invest Wisely
Focus on simple and low-cost ways to diversify your investments and grow your wealth. If you are hands-off, consider low-cost options like target date funds or a digital advisor for easy diversification.
Treating financial independence as a goal allows you to make strategic decisions that help you achieve your preferred lifestyle.
Financial Independence As A Lifestyle
Financial independence isn't just a destination. It's a way of life. Embracing a financially independent lifestyle involves making choices that support long-term well-being. Here are some tips you can incorporate into your journey.
1. Adopt Frugal Habits
Practice mindful spending. Look for ways to cut unnecessary expenses, such as dining out less often, shopping the sales and setting guardrails to discretionary spending.
2. Prioritize Health
Invest in your health by maintaining a balanced diet and exercising regularly. It’s as easy as incorporating more whole foods in your diet, taking regular walks and picking up an active hobby. Healthier individuals often face lower medical expenses throughout their lives and especially in retirement, which contributes to financial stability.
3. Pursue Hobbies
Engage in hobbies that bring joy and fulfillment. Activities like gardening, hiking, or reading can enrich your life without breaking the bank.
4. Build A Support Network
Surround yourself with like-minded individuals who share your financial goals. This can provide motivation, accountability and the right role models to help support you.
By viewing financial independence as a lifestyle, you can create habits that support a sustainable and enjoyable way of living now and throughout your entire financial life.
Financial Independence As A Process
Achieving financial independence is a journey that unfolds over time. Here’s how to navigate this process effectively:
1. Early Stage (20s-40s)
Focus on earning: Increase your income through career advancement or side hustles.
Start saving early: Save a significant portion of your income (20% or more) to build a solid financial foundation and remember to set those savings on automatic. This can give you options to retire earlier or take strategic breaks when needed throughout your career.
2. Middle Stage (40s-60s)
Review plans: Regularly review and adjust your financial plan to ensure you stay on track. Annual reviews are a good cadence to aim for.
Optimize investments: Adjust your investment strategy to balance growth and risk appropriately as you approach retirement.
3. Late Stage (60s and beyond)
Manage expenses: Monitor your spending closely, especially on healthcare-related costs.
Invest and withdraw prudently: Ensure your assets are properly invested for the retirement withdrawals you need, while taking taxes and the markets into consideration. It might be helpful to work with a qualified retirement planning professional to help guide you on this.
Enjoy retirement: Make the most of your planning and savings by being with the people you love and engaging in the activities that bring you joy.
Understanding financial independence as a process helps you prepare for the different financial needs and challenges at each stage of life. If you find yourself feeling a little behind, go back to financial independence as a goal to make the adjustments that will help get you back on track.
Financial Independence As A Mindset
Lastly, financial independence is about cultivating a mindset that empowers you to make the best decisions and embrace opportunities. Here are some key ways to uplift that.
1. Positive Thinking
Focus on the personal benefits you can derive from financial independence. For example, those may be freedom, flexibility and opportunities. Write these down, along with your vision for financial independence and keep it where you can see it daily. Creating a positive mindset can motivate you to stay disciplined and enjoy the journey.
2. Continuous Learning
Build your financial literacy knowledge and stay informed on financial trends and strategies. This knowledge will help you make better saving, spending and investment decisions.
3. Resilience
Be prepared for setbacks and remain flexible. Life is full of curveballs. So, it’s best to expect that they are going to happen. Establishing emergency savings and not carrying debt with a high interest rate are great ways to build this financial resilience. Remember, you can always adjust your plans as needed to stay on course or change the course.
4. Mindfulness
Practice mindfulness to help reduce stress and stay present so you can make thoughtful financial choices. A mindfulness practice can improve your overall quality of life and financial well-being and it takes just 5 minutes a day to get started.
By adopting a financial independence mindset, you empower yourself to intentionally take control of your financial future and live a fulfilling life.
Bringing It All Together
As you can see, financial independence is more than just having enough money to retire. It's about setting and achieving goals, adopting a sustainable lifestyle, navigating a lifelong process, and cultivating a positive and resilient mindset along the way. By incorporating some or all of the action steps in each of these areas to your life, you can work toward a financially independent and fulfilling future while fully enjoying the journey.
