Financial Independence: 5 Ways to Keep Your Eye on the Prize

By Chika

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Last Updated: July 6, 2022

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The 4th of July is a reminder of those who laid down their lives to fight for the freedom we cherish and enjoy today. It is the day the United States declared independence from Great Britain in 1776.

However, the date can also be used to represent another milestone in our lives - financial independence.

We can use the 4th of July to declare our financial life free from debt, poor credit score, poor money management among other financial vices.

 

 

What Are Some of the Barriers to Financial Independence Right Now? 

Food, gas, and housing are going up through the roof. Inflation is at its highest level since 1981. Only those who are adequately prepared will be able to wade through the storm and absorb the shocks of the coming recession. 

But many people are not prepared for this. According to a 2021 study by Bankrate:

Combined with auto debt and student loan debt, this has propelled total household debt to a record $15.84 trillion at the beginning of the year. With inflation biting harder, there is a strong possibility that many people will go into debt to get by. 

Still, others, who may appear to be doing fine from the outside, with steady employment and comfortable homes, get trapped in a cycle of consumerism.

Those trapped in this cycle may feel that they can never get ahead or pause to rest.

They need to work long hours to pay for the financial life they’ve chosen to build. It is estimated that nearly 40% of those with annual incomes over $100,000 live paycheck-to-paycheck, with 12% struggling to pay their bills

Achieving financial independence takes conscious efforts, just like those who fought for the independence of the United States. It is a deliberate strategy that has to be seen through to the very end.

Just as the independence enabled the United States to guarantee the freedoms of future generations, similarly, a declaration of financial independence can bring financial freedom to future generations and make them stand above their peers in decades to come. 

 

 

5 Strategies for Financial Independence 

Here's how to fight for, and declare your own financial Independence Day.

 

1. Have a long-term plan

Most people do not achieve financial independence because they do not set long-term goals for themselves.

They do not envision where they would like to be in the next 5 to 10 years. One major advantage of having a long-term goal is that it helps you align your daily actions to your long-term goals.

As a result, you become more disciplined and less wasteful with your finances.

For example, if your goal is to complete your mortgage by 35, you would understand that taking out credit card debt in your teens or 20s would hinder you from achieving such a goal.

Financial independence is a journey, not a sprint. As such it is always important to ask yourself what you would like to achieve in the future and work towards it daily.

 

2. Reduce your debt 

A debtor is always in chains, subject to the whims of his creditor.

Being neck-deep in debt not only stagnates your financial life because it prevents you from building the resources needed to grow your capital or take advantage of opportunities. 

Even if you're not independently wealthy, being debt-free is one of the best kinds of financial freedom that most Americans can aspire to have.

Getting—and staying—out of debt will give you more flexibility to save money, invest for retirement and face whatever comes in your financial future.

The current setup of the American society encourages debt. Using it to pay for your necessities such as getting a car, a house, or an education is deemed normal. However, if used wrongly, getting a loan could be a decision that may haunt you throughout your adult years. 

While it's advisable to be debt-free, you can use debt to achieve financial independence. 

For example, using debt to start a business or get an education could be alleviating in the long term.

The key is borrowing to pay for things that tend to increase in value or will help you make money such as:

  • homes
  • education
  • starting a business

These are debts that can help you down the road, instead of getting bogged down with high-interest credit card debt from everyday purchases. 

 

3. Invest

The surest pathway to achieving financial independence is investing.

Savings only maintain the nominal value of your money, and their value gets eroded by inflation over time.

Investing, if executed efficiently, tends to increase your wealth exponentially in the long term.

The compounding effects of long-term investing are a testament to this fact. However, it would be foolhardy to expect to see the results of your investments in a short time frame. You need time to grow your investments, but it's never too late to start now.

You can start small and grow your portfolio over time, by making weekly or monthly contributions to your investment account. Remember, an investment made saves you a day from work. 

 

4. Live within a budget

Living within a budget allows you to allocate finances to things you need, not want.

It helps to peel off expenses you don't need and optimize your income. One less talked about benefit of budgeting is character development. Operating within a budget enables you to develop the resilience and character needed for keeping wealth.

Many people make money, but do not know how to manage it. Hence after a few years, they are back to zero. 

By budgeting, you delay the gratification that comes from buying that expensive car or going for that needless vacation so that you can show off to your friends.

Budgeting keeps you in line because you understand you have a bigger goal to accomplish. Without the necessary character, it would be difficult to achieve and maintain financial independence in the long term. 

 

5. Have an Emergency Fund

Life is not a straight road, but one filled with twists and turns.

As such, you can never know when an unexpected event would occur, thereby having a significant effect on your finances. One way to mitigate against this is by having emergency savings.

This is your backup in case any unforeseen event occurs which requires money. Having emergency savings isolates your main investments, and gives you the confidence to take on your long-term financial goals.

It also means you'll be less conservative in your approach and can seize those opportunities that can grow your wealth.

 

 

Final Word on Finding Financial Independence

Financial freedom is not just about dollars and cents; it’s a state of mind.

By getting out of debt, prioritizing your spending on what matters, building an emergency cash savings fund, and investing for the future, you will build a stronger and more resilient foundation for your own life and for those you love.

The sense of security and the safety net of having your finances in order can help you feel more confident, more peaceful, and, yes, free. Plus, this freedom has multiple effects as it would set the stage for your kids and grandkids to live a more financially free life.

Photo by Lukas

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