5 Foolproof Ways to Establish Financial Independence
This is a guest post written by Raul Harman
You thought that the road to long-term solvency lies in landing a high-paying job and working until you croak? Well, life is a little more complicated than that, and while you definitely should pursue a “safe harbor” in terms of revenue, simply having a job is not the way to true financial independence. Because when life starts throwing you curveballs, your paycheck alone might prove to be insufficient.
The key is to approach the problem from a different perspective: what can you do to minimize expenses and liabilities, while maximizing income efficiently (that means without wasting away at the office) and effectively (earning more with each passing year). While the road to financial independence is not without its obstacles and challenges, there is nothing you won’t be able to overcome with a bit of prudent planning and smart decision-making.
It all starts with a realistic financial plan
When you start planning your finances and tracking your expenses with a smartphone app, you know you’ve officially stepped into adulthood. As dreary as it may seem at first, tracking your finances is the first essential step towards solvency, as it allows you to optimize your spending (more on that in a bit), and adjust your approach according to your needs and even completely redefine your spending habits.
What’s more, a sound financial plan will help you set up long-term goals, and start working towards achieving them early on in your career. Remember, if you don’t know how much you’re spending, and if you don’t plan your finances five, ten, or twenty years in the future, you will have a tough time realizing financial independence in the long run.
Say no to impulse shopping
The modern world can be segmented into products, services, and customers. Almost everything you come in contact with on a daily basis is a part of an elaborate marketing campaign designed to get you to buy, and even reshape your mindset to adopt an impulse-shopping habit. Needless to say, there is no room for impulse shopping on the road to financial independence.
However, refraining from picking up things you might not need is easier said than done, as shopping is more of an emotional experience than a rational one. And brands are betting on that emotional trigger. The key is to make a weekly list of necessities and stick to it no matter what. Even when you see an “amazing limited time offer”, you want to stick to your shopping list. At the end of the month, the financial savings you’ve made will further encourage you to keep following this healthy habit.
Diversify your income streams
Ask any self-made millionaire and they will tell you: the key to true financial independence lies in diversifying your income streams. Relying on a single paycheck might seem like you’ve finally found stability in your life, but in reality, it’s only limiting your options and endangering your future should anything go awry in your company.
Instead of dreading the day your boss starts “letting people go due to budget cutbacks”, you want to build multiple income streams over time by doing side gigs such as taking surveys to make money online efficiently and effectively. By venturing into the online marketplace, you can create numerous passive incomes and even establish financial diversity by working no more than half an hour a day to supplement your main revenue stream.
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Set up an emergency fund
There is no telling what kind of storm awaits in the future, and how much it could cripple your ability to maintain your current lifestyle, let alone move up the proverbial ladder. This is why it’s absolutely essential that you set up a contingency fund that will cover all unforeseen expenses, no matter how big or small they might be.
But don’t just put all of your money in one basket, but rather establish different funds for different scenarios. This means you’ll need adequate medical insurance, a pension fund (better if you invest in life insurance), a rainy day fund, and an innovation fund as well. The last one will help you venture safely into entrepreneurship and realize your own business dreams without the risks of financial pitfalls.
Take care of your outstanding debt
Finally, nothing good can come out of avoiding to pay your debts and settle your credit score. Not only will a bad credit score lower your chances of obtaining a great loan, should you ever need one, to buy a new house, equip your office space, or remodel your existing interior, but the cumulative interest will make it difficult to pay off as time goes by.
So while it might not seem like an ideal solution at this moment, taking care of your outstanding debts now in order to ensure a positive balance tomorrow would be a wise and prudent decision. Your future self will thank you for lifting that weight off your shoulders early on.
Nobody said that establishing financial independence is easy, or that it can be achieved overnight. In fact, the road to lifelong solvency is laden with challenges and obstacles that will force you to step out of your comfort zone, and make tough decisions along the way. With these tips in mind, however, you will have no problem paving the road to financial independence in a few years’ time.
Author bio:
My name is Raul, editor in chief at Technivorz blog. I have a lot to say about innovations in all aspects of digital technology, online marketing. You can reach me out on Twitter.
Hi, I'm Kelly O'Donnell.