Many people want to become financially independent, but they do not have any idea where to start.
In this post, I will share five key tips to become financially independent; these are the things I did to dig myself out of the financial ruin I was in for many years.
What is financial independence?
Financial independence is when an individual or household has accumulated sufficient financial resources to cover living expenses without depending on active employment or work to earn money to maintain its current lifestyle.
5 Key Tips To Become Financially Independent
If you want to become financially independent, you will need to have a plan; this is the plan I had that changed my life.
If you can act on these five tips and do this for 1 to 2 years, your financial situation will improve greatly. Here are my key tips to become financially independent.
Evaluate your Current Situation.
The first step to financial independence is to evaluate your current situation. What do you have? How is your finance? This can determine which direction you can take. In this step, you need to evaluate how much you make, how much you spend, and if you have any debt or investment.
How much do you make and spend?
How much do you make per month? And how much of that money do you spend? If you spend more than you make, surely you will be in debt.
My recommendation in this situation is to try to cut down your spending as much as you can, evaluate your spending habits, and remove things that are not essential.
You do not need YouTube Premium, Spotify Premium, and ten other apps. You can cancel all of them for now or just keep one.
It is not just streaming apps. Figure out anything that is not essential and cut them out. These are things you do not need, or they make you waste time.
Start a side Hustle.
You can cut off your spending as you wish, but you will never have financial independence if your income can not fulfill your basic needs.
You have two options. If you can not even meet basic needs, like housing or food, I recommend getting another job, a second job, or a higher-paying job.
Another option is to start a side hustle. There is the trick. Not all side hustles are the same. I recommend figuring out what you already know and starting there.
For example, if you are an accountant, start a side hustle helping people how to do accounting, or you can start a YouTube channel/Blog giving people tips on how to do accounting.
Doing things you already know is easier than doing new things. If you lack skills, it is not the end of the world. You can learn the skill and start making money with it.
Pay Off bad debt.
There are two types of debt: good debt and bad debt. A good debt is when you borrow money to make money, and a bad debt if the money you borrow will not help you to make more money.
When your side hustle or another job starts making you some money, do not spend it buying things. Use that money to pay your debts.
Most debts have a high interest rate, so you will spend all your income paying the interest.
If you get some extra money, put it to pay your debt ( pay it in advance instead of a small amount).
I recommend paying the debt with higher interest if you have several debts. This will save you a lot of money as interest.
Create an emergency fund.
An emergency fund is money you set up and will use in an emergency. To know how much money you need in your emergency fund, estimate how much you need to live comfortably in a month. Multiply that number by the months you want it to cover in case of an emergency.
For example, if you spend $5000 per month, the minimum I recommend is to have at least $15000. This will cover at least three months of your monthly expenditure in case of an emergency.
You can use this money in an emergency, or if you lose your job, you can use that money while looking for another job.
If you want to become financially independent, I recommend having at least 24 months of your monthly expenditure.
This is because if you make money online, that is enough time to start a new online business, learn a new skill, find new customers, and make enough money to live comfortably.
A friend of mine had a blog making over $10k per month. One day, some kids hacked his blog, and he lost all his income.
He had no emergency funds, so he started a new blog, but it was not as successful. He had to return and find a teaching job.
It is unfortunate, but it can happen to any of us. This is why it is crucial to have an emergency fund if you want to become financially independent.
Invest Your Money.
If you want to multiply your money and become financially independent, you need to start making money from the money you have.
You can achieve this by investing the money you have. I am not a financial advisor, so I can not tell you where you can invest your money, but what I will share with you is where I invest my money.
Invest in ETF
An exchange-traded fund (ETF) is a basket of securities that tracks or seeks to outperform an underlying index. ETFs can contain investments such as stocks.
I use some of the money I make online to invest in ETFs. I use a broker for this; you can ask your bank, and they probably have a place to buy ETFs.
My Citi Bank account lets me buy Blackrock stocks. I have invested some of my money there. Here in Mexico, we have a lot of brokers where you can buy stocks.
I have bought a house where I have people who live there, and they pay me monthly rent.
This will need more investment upfront, but if you have the money, you can invest in real estate, buying lands and houses and renting them for profit.
The key tips to becoming financially independent are to assess your current situation and set a goal where you want to be, start a side hustle to help you get there faster, pay any bad debt if you have one, create an emergency fund,, and invest some money you have.
It might take you a few years to reach your goal. You will have to keep working, learning, and improving.