Have you heard about financial independence and want to work out if it is the ultimate money goal for you? Keep on reading as I’ll be delving into what financial independence, how you can achieve it and what things to consider before setting your money goals.
Everyone should have a money goal (Find out why at Why You Need A Money Goal), but the question is “What type of financial goal should I set?”.
There are two things that will impact what is a suitable money goal for yourself.
1 – What is your current financial situation?
2 – How long are you setting your goal for?
When looking at your current financial situation it is useful to have a wealth scale to put yourself on.
According to Barbara Huson (formerly Barbara Stanny), a leading authority on Women & Wealth, there are four stages of wealth
- Survival
- Stability
- Wealth
- Affluence
To work out your current financial situation you should consider your income, your expenditure, your debt and your assets.
Once you have a realistic understanding of your current financial situation you can then set a money goal with an appropriate timeline.
WHAT IS FINANCIAL INDEPENDENCE?
Someone is classed as financially independent when they have enough income to pay for their living expenses for the rest of their life without having to be employed or dependent on others.
HOW CAN YOU BECOME FINANCIALLY INDEPENDENT?
The key to becoming financially independent is having assets that are generating more income per month than you are spending. When your passive monthly income surpasses your monthly expenditure you will be financially independent. This means you have to focus on investing and building assets to create that monthly income.
HOW CAN YOU BECOME FINANCIALLY INDEPENDENT QUICKER?
To achieve financial independence quicker there are two options: reduce your expenditure or increase your income.
For the majority of people who follow the FIRE (Financial Independence, Retire Early) movement there is a large emphasis on reducing your expenditure. Frugality is praised and making major life changes like downsizing are encouraged in order for you to achieve your financial goal quicker.
IS FINANCIAL INDEPENDENCE THE RIGHT GOAL FOR YOU?
You are the only person who can decide if trying to achieve financial independence is the right thing for you.
The major things to consider are:
- To increase your speed of achieving financial independence you’ll need to reduce your spending. Do you want to reduce your living costs today in order to achieve financial independence sooner?
- Maintaining a low monthly expenditure for the rest of your life will help you to be able to build the assets to meet your monthly income target, but are you happy to maintain that lifestyle for the rest of your life?
- Are you genuinely excited about the opportunity to not have to work and being able to retire early?
Regardless of whether you decide that financial independence is the goal for you or not, you can learn an awful lot of others who are financially independent or on the journey. Taking an honest look at your income and expenditure, as well as being intentional about your future will put you in a great financial place no matter what stage of wealth you are currently at.
Like the sound of financial independence and want to delve into the topic more? If so you should read Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence by Vicki Robin and Joe Dominguez.
