Achieve Financial Independence with these Tips

Elaine King

Would you like to eliminate the feelings of fear or worry that creep into your mind when you think about your finances? Financial independence can help you feel confident in your finances and achieve your financial goals. For many, financial independence means an early retirement. For others, it means eliminating debt and feeling secure in their investments and bank accounts. But, generally, the term means not having to work while still living life to the fullest. To achieve your own version of financial independence, follow these tips that will help you reach your goals:

1. Visualize Success and Say “No” to Fear

First, you have to visualize your own version of success. What would you like to achieve with your finances? Give yourself the freedom to use your imagination and dream big. Now, what scares you when you imagine yourself working towards this goal? How can you overcome those fears? It has a lot to do with your attitude. With a positive, can-do attitude, you will achieve much more than if you’re negative. But, even with a good attitude, reaching your financial goals requires commitment and hard work.

Did you know that 80% of Americans live paycheck to paycheck and 50% do not have an emergency fund? Peruvians are not doing much better, since only 48% of Peruvians have an emergency fund, down from 52% in 2014.

These numbers tell us that something is wrong. You can’t achieve financial independence if you have no savings for an emergency and everything you earn goes towards covering the basics. But, this does not mean that financial independence is a pipe dream. With a little more knowledge and some solid planning, even people who earn minimum wage can make progress.

2. What Does it Mean to Achieve Financial Independence?

Because we are all a little different, we have different expectations for what financial independence should look like. Consider these three examples:

  • The Conservative Approach: A person who does not like to take risks may prefer to save enough money so that the interest their savings earns covers their monthly fixed expenses.

How might this look in real life?

Natalia has worked hard all her life and since she was young she started saving for her retirement. Now with the money she has in her investments and retirement accounts, she has enough money to cover fixed expenses. She is at peace because she knows that her money is safe and that it will help her to live through her retirement without leaving any debt to her only child. The best part? She was able to stop working at age 65.

  • The Moderate Approach: For people who are a little more willing to take some risks, financial independence might mean having investments that, with interest plus growth, cover more than just fixed expenses. In this approach, people can reach financial independence more quickly.

How might this look in real life?

Paul has made several moderate risk investments and also has a retirement account. There is a little more risk in his portfolio, but if things go well, it will cover his fixed expenses and even earn a little more money. Paul wants to spend a quiet retirement with his wife, travel to Europe and inherit money to his children. With what he is generating in his investments, he can stop working at age 55.

  • The Aggressive Approach: Some people really like to put their money to work. It involves having a variety of appreciating assets and business ownership, that together give you more than you need to live on. This way, you have the freedom to continue acquiring future sources of income.

How might this look in real life?

Sami and Priscilla own a company that sells beauty products. When they have enough money saved, they invest it in opening a new store. They also have money in the stock market and bonds. Their goal is to continue growing their business so that they never have to work. Since they turned 50, they travel the world’s beaches to sunbathe and relax.

It is important to note that in each example, the person no longer has to work a 9 to 5 job. Now, their money does the work on its own without much intervention. And so, people who achieve financial independence have the freedom to live a good life without working.

It’s up to you which profile you think best. If possible, it’s wise to speak with a certified financial planner to understand the advantages, disadvantages, and risks that each one offers. When you know the profile that you best identify with, you can clarify your goals and work towards achieving them.

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Elaine King - Family and Money Matters™ 2021