However, being financially independent can deliver many benefits including peace of mind. Nowadays, in Australia, it takes two incomes to raise a family. Recent financial reports also indicate that many young families, with two incomes, will not be able to afford to own a property in Sydney.
These reports are very alarming to me. It shows how the cost of living is increasing and how many people will be negatively affected by it.
It is therefore important that we all take responsibility for our financial affairs and strive to achieve financial independence. This process does not need to be a torture nor an exercise in self-deprivation.
I found these tips by searching on the internet and from personal finance book I have recently read. They are designed to help you to achieve financial independence.
#1 You are your most important financial asset
Your skills, knowledge and experience are your most important assets. Most conservative financial writers say that your career is the most important financial asset that you posses, however you are your most value asset.
You are the only person that can work towards achieving financial independence. You need to focus your will power and desire to achieve your goals.
You are your most valuable asset therefore in order to achieve financial independence you need to improve your skills in the areas of personal finances.
You need to be able to understand basic accounting principles in order to understand complex financial scenarios that you will face as you walk towards financial independence.
I wrote the following article a while back, it gives you a brief introduction to basic accounting.
Basic Accounting Principles - The Start to Financial Freedom
See yourself as your principle financial asset and then start acting in such a way that can help you to to achieve your objectives. You may have to invest time and money in your career in order to earn extra cash in the immediate future. Ensure that whilst you do that you also develop you financial skills to deliver financial independence in the long term.
#2 Set goals
There is plenty of research that says that individuals who plan and set goals have more chance of achieving the set objectives than those who not.
People that are successful have set goals and plans on how to achieve those goals.
Write the goals down and set a plan on how to achieve them. Even this simple process of goal setting has the potential to help you to achieve your objectives.
Your goals and plans don’t need to be complex and detailed. You can start by listing them down without thinking about short and long term goals. Just list them down. Once you have your initial list you can start to organise it into long terms goals and the short term ones that will help you to achieve your long term goals.
For example, if you listed that you want to become financially independent, the nest step is to set short term goals to help you on the way. They may include paying off unsecured debt and then start investing.
You have a higher chance of achieving your objectives if you have a clear and concise list of goals.
#3 Focus on short term goals
Continuing on the theme of goals, it is important to to focus on short term goals. This advice is based on the fact that progressively achieving short term goals will eventually cause you to achieve your long term goals.
As you achieve your short term goals then continue to set more short term goals until you achieve your long term objectives.
One of the main reasons that people fail to achieve their objectives in life is that they focus too much on long term goals and dreams and fail to take baby steps that help them to achieve their long term objectives.
Make sure your set your long and short term goals and act on your short term ones. You will find yourself achieving your objectives sooner than you think.
#4 Plan for retirement
Retirement can be a source of stress to many people. After working a long and hard life the last thing you want is to have to worry about money during retirement.
Make sure that you plan for retirement so you are not caught by financial problems once you get there.
Many people are not interested in becoming financially independent, there is nothing wrong with that. whatever your circumstances are, you need to ensure that you contribute towards your retirement savings so to ensure that you have enough income to support yourself, and you loved ones, during retirement.
I would go as far to say that even if you plan to achieve financial independence before retirement, making contribution towards your retirement fund is an important strategy to help you to achieve long term goals.
You should aim to have several sources of income to be truly financially independent. You retirement fund should be one of them so make sure that you regularly contribute towards your retirement fund. Once you develop the habit of saving and depositing the money into your savings fund will you not regret it.
#5 Ensure that you spend less than what you earn
The key to financial independence is to have a positive cash flow where your income comes from passive income sources. Even the richest people in the world would not continue to be rich if they spent more than what they earned.
The seriously rich individuals have setup their sources of passive income and sit back and watch the cash coming in. It sounds easy putting it this way but it is very hard to setup sources of passive income.
Taking control of your cash flow and setting up sources of passive income is a vital step in your road to financial independence.
#6 Become financially literate
In order to become financially literate you need to know how finances work.
You need to know about income, expenses, cash flow, passive income, debt, tax and many more financial terms.
I know it does not sound very fun but once you learn some basic definitions and know how to apply them to your daily life is actually kind of fun.
There is also research that shows that people that are financially literate have more chances to accumulate wealth than those who are not.
#7 Take calculated risks
Taking calculated risks is a prudent approach to take when managing your financial affairs.
This should not be a point that prevents you from taking action towards achieving financial independence. The key here is to ensure that whenever you decide to do something you need to look at all of the associated risks and plan for each possible outcome so you are not caught by surprise.
Taking calculated risks when you can afford is necessary to get ahead. Playing it too safe might be the biggest mistake you make in the long run.
#8 Borrow to invest, not to finance expensive stuff
One key advice that you will find in most personal finance books and articles is that you should not borrow cash to finance an expensive lifestyle that you cannot afford.
I know that working hard to achieving your dreams may give you a feeling of entitlement for a lifestyle that you may not yet be able to afford. Many people will then use their credit cards to finance a lifestyle that they cannot afford.
What you need to do in this case is to sit back and wait. Have patience and make sure you don’t fall into the trap of borrowing money to finance a lifestyle rather then your investments.
If you are going to borrow at all then you need to make sure that you are doing it so to purchase assets. An asset is something that puts money in your pocket, like an investment property or shares.
Borrowing to meet short-term desires is counterproductive when striving to achieve financial independence so make sure that when you borrow cash you use it to acquire appreciating financial assets.
#9 Take advantage of the internet
The internet is a very valuable source for information on becoming financially independent.
For example, you can use the internet to learn about basic accounting and other financial principals you need to manage your finances.
You can also use the internet to research investments and to network with individuals who can help you in road to financial independence.
There are many different ways to use the internet to help you on your path to financial independence. Make sure you use them.
#10 Remember to have fun
One of the most important advice I have found is to have fun. The road to financial independence can be very hard and frustrating at times.
If you plans are not working be flexible, change your short term goals to something that can be achieved.
Take a break. Maybe take a weekend and go away with family or friends, do something that you enjoy. don’t be a slave of your plan. Take action, take control and have fun.
Achieving financial independence is not easy but it is achievable if you understand your priorities, set achievable goals and take the right steps towards achieving them. Good luck!