When I first embarked on my journey to wealth, I was familiarized with the term financial freedom.
However, as I began to browse through some blogs, I have noticed that many have the goal of financial independence instead. Although these two terms may be likened to the same thing, I have never seen it that way.
To be completely independent from money does not necessarily mean that all your financial dreams would be possible just yet. For me, it was only just a first phase that I knew I had to achieve before I can truly be free from any financial restraints.
In this post, I would like to share my take on how to become financially independent.
Having the Right Financial Mindset
The first and probably the most important step for those interested in financial independence is having the right mindset.
Too many people think that financial independence is nothing more than just a dream and it is something that is unattainable. As a result, they don’t do anything to improve their finances. Instead, they find themselves trapped in the rat race.
For me, having a realistic goal and a detail plan to achieving it makes my financial dreams seem more realistic.
Increasing Financial IQ
Learning from others is the best way to build financial IQ. Whether it is following the blog of those who share similar interests or reading financial books from those who are already financially independent, increasing literacy is vital in achieving financial goals.
It also goes without saying that having the knowledge and not putting it into practice is like not having the knowledge at all.
The next step in becoming financially independent would be to keep an eye out for potential cash flow opportunities and to make good investments.
I have learned that there are 3 types of investments:
- Portfolio: Stocks, bonds & ETFs
- Property: Real estate & Land
- Business: Start Up or Established
Although some of these investments may require a large amount of capital, I have nothing against leveraging loans and line of credits. As long as the opportunity generates positive cash flow, borrowing money for a good investment is always a viable option.
“Borrowing money isn’t risky; it’s what you do with the money that’s risky.” – Robert Kiyosaki
Building Passive Income
The goal for anyone trying to become financially independent should be to build a passive income stream big enough to pay for all their expenses (and maybe a little extra on the side.)
Since I am still living with my parents and my monthly expenses amount to $500, does that mean all I need is a passive income stream of $6000 a year to be considered financially independent?
Well of course, I can’t be smooching off my parents forever. Once I move out on my own, my monthly expenses will be much larger.
At the same time, my financial goal is to achieve “freedom” instead of “independence”. This will require a passive income stream generating much more than just enough to cover my expenses.
Paying Off Debt?
The general approach to debt is to pay it off as quickly as possible. However, there are good debt and bad debt. Good debts are usually low interest loans like mortgage, student loans or a line of credit that is in no rush to be paid off. On the other hand, bad debt should be taken care of immediately. This includes credit cards and high interest personal loans.
Personally, I don’t believe that financial independence requires that all debt to paid off but I know some people who would disagree to that.
Be Committed to the Process
The journey to financial independence is not an easy one, especially when starting from scratch.
From my personal experience, I have had to go through many trial and errors in mapping out my path to get there. I am still in the process of trying to improve on my 7 year plan to one million dollars.
The important thing to remember is that it will take a lot of hard work and at times, progress may even become stagnant for a while. In spite of that, with a little determination and commitment in the equation, I have no doubt that those who truly want financial independence will achieve it.
What are your thoughts? Am I missing anything?
Subscribe to a monthly personal finance newsletter for stock market news, saving tips, special offers and interesting reads from other personal finance bloggers.
Thank you for subscribing.
Something went wrong.