Financial freedom

7 habits that will help you become Financially independent

“Wealth Is The Ability To Fully Experience Life.”

Henry David Thoreau

To be financially independent is one of the goals we aspire to achieve. For most of us, it will take a lifetime. It is not an easy goal to achieve but when you plan for it, then you achieve it faster. 

Wikipedia describes financial independence as the status of having enough income to pay one’s living expenses for the rest of one’s life without having to be employed or dependent on others.

It is a great place to be, and while it may not easily be within the reach of many, it is not impossible to achieve.

For the older generation, financial independence would usually be achieved at retirement with the help of a good company retirement package.

Today, this is not the norm especially as employers are not as generous with their retirement schemes. Some do not even match the employees’ contribution, while some entirely outsourcing the retirement function.

This usually leaves the employee with scanty information on the adequacy of their contributions as well as the appropriateness of their investments.

Thankfully, we can be financially independent before getting to retirement age.

 I love this tool for calculating my financial independence and retirement goals. Try it out

There are habits, that propel us to achieve financial freedom. They include:

1) Budgeting; 

This is just setting up a plan for your income and expenses. You determine both and you get to adjust this plan according to your life’s circumstances. For most of us, we cringe at the thought of creating a budget.

However, if you about it honestly, a budget gives you an overview of what you have in terms of income and how best to apply that income to achieve your financial goals in the shortest time.

If you know where your money is going, you become more in control of your finances and it definitely gives you more confidence in the decisions you make.

Logically we should jump at every chance to budget and plan for our future.

2) Frugal Living;

Simply put , it is living within your means. It means saving your income before you have the opportunity to spend it all. Constantly evaluating what needs and wants we have. 

Spending money on what you can afford rather than getting into debt to afford it.

It may sound daunting but when you do this over time, it becomes second nature.

3) Avoid unnecessary consumer debt;

 Avoiding debt goes hand in hand with living frugally.

It can be as simple as being content with the income you have now while working your way to afford the things you want later.

Keeping up with fashions and trends is a sure-fire way of ensuring you get into unnecessary consumer debt just to keep up. Remember new trends are coming up every day.

Practice delayed gratification. Where possible, get rid of the credit card, uninstall those money lending apps. Even avoiding those friends who you know will easily convince you to get into debt.

On the other hand, you could use debt wisely to propel you to acquire appreciating assets, such as land, a rental building, and a retirement home

Habits that make you financially independent

4) Investing Wisely;

Investing wisely requires research into the investment vehicles as well as understanding your risk appetite. It is vital to understand what you are investing in.

 Avoid investing in get-rich-quick schemes where the return on the investment promised borders on the absurd. Those who are old enough will remember when investing in pyramid schemes was the in-thing. Obviously, the only person who gets rich quick in these schemes is the schemer and not the investor.

Being risk-averse, by contrast, is not always a good thing too. If you are young you lose out on the advantage of compound interest and ease of recoverability.

As an example, if you are aged between 25-35 years the bigger chunk of your investment portfolio should be between high risk and medium risk.

It will not serve your financial freedom goals for you to invest in low-risk investments at that age as it will take you unnecessarily long to reach them.

5) Increasing your income streams;

Your primary source of income should never be your only source of income. We have talents, abilities, and networks that can assist in making extra income streams. Leverage on this, especially when you don’t have too much responsibility and demands on your time.

An additional income stream, not only increases your sense of security,  it allows you to reach your investment goals faster.

6) Breaking down your goals into Short, Medium, and Long Term;

Financial Independence for many of us is a long-term goal. It is a Marathon if you will. But in order to continue to be motivated over the long term, you need pitstops. To celebrate achieving shorter-term goals and just to recharge. So have the long-term goal in mind but break it down into manageable chunks.

As an example, you can calculate the Financial independence number and when you want to achieve it.

Say your goal is to reach financial freedom in 10 years with 1Million in investments. You will need to break down the goal to 3.5 years milestone in the medium term and a 1-year milestone for the short term.

This approach will help you know if you are on course, or if you need to vary your goals.

7) As your income increases, managing your expenses;

It is very easy to get into the trap of increasing your expenses as your income increases. It is very natural to want bigger or better than what we currently have.

Most of the time what we have may be serving us just fine.  At all costs, please avoid the itch to explore the other side or to look like you have made it. Stay the course, I promise you the rewards will eventually be evident.

Financial freedom is a noble goal that I am convinced is attainable for all of us. I am further convinced that we don’t have to achieve it in our old age. If we press in and are disciplined in our habits the sky will not be the limit!

I’d love to hear about your financial independence journey, lets chat in the comment section.

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