While retirement and financial independence share some similarities, there are slight differences between the two. Retirement is part of a natural life cycle. You work for a long period of your life saving money. Then, once you reach retirement age, you stop working and enjoy the rest of your life in the manner that you wish.
Financial independence, on the other hand, is something that can be achieved at any age. You’re financially independent when you have enough assets and resources to decide on your own terms how, when and where you work. You may work, or you may not, but the decision is up to you.
Many people strive to reach financial independence early in life, mainly so they can enjoy the life they want to live in their younger, healthier years. While challenging, it is possible to achieve financial independence well before retirement age. Below are a few steps to get you started:
Get good at saving.
Knowing how to save money is a critical part of gaining financial independence. A great way to get in the saving habit is to pay yourself first. Create a budget and make savings a mandatory expense item. Pay yourself before you pay any other bills. After doing that regularly, you’ll get in the habit of contributing to your savings on a consistent basis.
Being frugal is another important piece of the savings puzzle. Maybe you can get by with a used car instead of a new one. Or perhaps you can use public transportation and services like Uber to avoid car ownership altogether. Instead of going on that costly vacation, maybe you can scale it back to a more affordable itinerary.
When you avoid substantial purchases, you free up cash flow to allocate toward savings. A budget can help you manage this process. If you don’t use a budget, now may be the time to get in the habit.
Avoid a costly home purchase.
Owning a big home is part of the American dream. It’s natural to want a big house, and if you have the means it can be a very tempting purchase. But big homes come with big expenses, such as the mortgage, taxes, maintenance, repairs, HOA fees, utilities and more.
If you’re looking to become financially independent at a relatively young age, you may want to consider a more modest home purchase. A smaller, less expensive home usually leads to reduced costs for your mortgage, taxes, maintenance and more. You also may be able to pay off the mortgage faster, freeing up cash flow to save or to support your lifestyle.
Also, don’t overlook the idea of renting. Yes, renting does create a regular monthly payment, but it also eliminates costs for taxes, insurance, maintenance and even some utilities. It could be a good strategy for you.
Develop multiple streams of income.
You may find that your salary isn’t quite enough to generate the kind of savings you need to achieve financial independence. Or perhaps you’re close to becoming financially independent but also need some part-time, side income to strengthen your financial stability.
Consider developing multiple streams of income either to boost your savings or to use as a fallback. For example, if you have a particular professional skill, you may consider picking up freelance work on the side. Doing this can create an additional stream of revenue and let you put more of your income toward your savings accounts.
Also, if you have a hobby or an interest, you might consider looking into monetizing it. You could also look into online platforms like Uber or TaskRabbit that let you make money when it’s convenient for you. Or perhaps you could teach others, giving lessons in your particular skill set either in person in your community or online.
Looking for financial independence? Let’s talk about it. Contact us at Gallagher Financial Group to learn more. We welcome the opportunity to help you examine your needs and develop a strategy. Let’s connect soon and start the conversation.
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