How to Gain Financial Independence in Five Years
What is financial independence?
Financial independence means that you don’t work to pay off your bills. Your assets (such as stocks or other automated revenue sources) generate enough income to cover all your expenses.
The Financially Independent Life
Oh boy! What a life would that be?
Working for months on an interesting project because YOU wanted to do it. And then setting out on a backpacking trip around the world for as long as YOU want.
Imagine all the different cultures you’ll experience – the people you’ll meet, the cuisines you’ll eat, the mountains and oceans you’ll see, the music you’ll listen to, the festivals you’ll participate in – the nightlife in Korea, the 20-feet high snow carvings in China; throwing colors and getting intoxicated on Holi in India; dancing with 180,000 people in Tomorrowland in Belgium, to running ahead of the bulls in the mean streets of Spain.
Does this sound too lavish?
A Life Beyond Mental Barriers
Well, that’s because you made it so.
The thing is, we can have it all. In life, you will get what you ask for and what you work for. The goal of financial independence is not to live a luxurious life. It is to live the life YOU want.
So, it’s time to raise the bar!
But the travel story we just discussed will be a fairytale without action, so let’s get to it.
Here’s how to gain financial independence in five years:
1. Create A Detailed Plan & Review Your Goals Every Day
The greatest power you have is to dream up a distant future and make it real with your energy and commitment. But you need to see it clearly.
You need to keep a diary in which you write your end goal, your yearly goals, your quarterly goals, and your monthly goals. Against each goal, write how you plan to reach there, the resources you’ll need, the obstacles you’ll kick, and the skills you’ll build.
Brian Tracy says that the number one thing you can do to succeed is to structure your goals as questions. If you want to launch a successful ecommerce store, write down “How can I launch a successful ecommerce store?” and then write down ten ideas below this question.
A detailed plan helps you see the path clearly.
The more clearly you see it in your mind’s eye, the faster it will manifest in real life.
You need to know where you stand financially as of today and where you want to reach in ten years from now.
Jeff Rose, a certified financial planner and an author on Forbes, says that your plan will consist of goals in multiple areas:
- Increasing your income
- Controlling your spending habits
- Paying off your student loan and credit card debt
- Understanding your saving patterns
- Determining your investment goals
- Defining your long-term financial goals
- Purchasing the best life insurance for family
- Implementing a legacy plan for your heirs
Now you may not want to think about how much money you’ll leave to your heirs, but all we’re saying is, you need to plan, set goals, and know the resources at hand. One simple and profound way is to subscribe to a great financial independence blog.
How to Gain Financial Independence: Create a series of goals to reach financial freedom.
2. Live Beneath Your Means and Save Regularly
If you want to be financially free one day, you need to live below your means. If you earn $4,000 per month, live like you earn only $3500 per month and save the rest. The key to financial independence is to pay yourself first before you pay your expenses.
Here’s the deal:
Don’t say that, “I’ll save when….”. Start saving today even if it means saving $50 per month. Starting small is important because it is how you build momentum. Keep it in an envelope if you want so that you can literally see your savings grow.
How to Gain Financial Independence: Save as much as you can.
3. Take Risks But Keep A Safety Net As Well
If you want to become financially free, you may have to take calculated risks such as investing in the stock market or investing in your own business. But this doesn’t mean reckless spending. You should always have a safety net to fall back on.
Safety net? What is that?
Safety net consists of two things:
2. Insurance Coverage
It includes saving 3 to 6 months of earnings if you receive a salary, and saving 6 to 12 months if you are self-employed. This may sound big initially, but first set a goal of saving one month’s income.
Make sure you have health insurance, auto insurance, homeowner, disability, and affordable life insurance. Insurance is meant to protect your assets, but most people don’t realize this fact. So if you large assets, you need to have large insurance coverage.
How to Gain Financial Independence: Keep enough savings to fall back on and have insurance for your health and assets.
4. Learn to Dodge Taxes Like A Ninja
If you want to become financially independent, you need to learn how to guard your wealth from taxes. The best way to do this is to retirement plans. Invest in your employer’s 401(k) plan to deduct taxes.
But how much?
it is recommended to invest as much as the employer’s maximum matching contribution. If you’re self-employed, invest in a solo 401(k) plan, SEP, or a SIMPLE IRA. Such plans will help you save 20 percent of your income.
Just think what you’ll do if you earned 20% more.
How to Gain Financial Independence: Guard your wealth from taxes.
5. Resolve to Get Rid of Debt
Debt is like a disease that sucks the life out of your body. If you have student debt to pay, or you owe money to others, set a goal to pay off your debt in 5 years or 10 years.
For example, your debt payment plan may look like this in your diary:
I will pay my student debt in ten years.
I will pay my credit card debt in three years.
Strategy – Save 20% regularly and work hard to earn 2X in 3 years.
How to Gain Financial Independence: Make it your goal to get rid of debt.
Achieving financial independence isn’t an overnight game. You are essentially buying your ticket to absolute freedom with this single decision and freedom never comes easy.
But once you decide that you are going to do whatever it takes, one step at a time, you WILL reach there and live however you want to live, away from all financial restraints.
As Tony Robbins says,
“It is in your moments of decision that your destiny is shaped”.