Freedom is not free. You either bear the cost to gain the freedom or someone does it for you. To be financially independent means many things at different levels. Generally, there is a stage in your journey to financial independence where you do not worry about your needs and wants.
Arguably, everyone thinks of how to become financially independent, but only a few know the secrets. How do I make myself financially independent? Well, if you happen to be a beneficiary of generational wealth, then your journey to financial independence would be very different from someone born into a modest background.
Given that there is no universal definition of financial independence, I thought to share with you the four stages. Among the four stages, one could independently be associated with one person, and more than one could be found in another.
To a large extent, these four stages summarize any possible definition you will come across on the internet. Here are the 15 ways to be financially independent:
Before I begin to buttress on each of the 15 ways how to become financially independent, you need to identify your current financial status. However, a basic definition of financial independence is being able to maintain a certain lifestyle without necessarily working. Here are the four stages:
- Stage 1: Active income caters for essentials and luxuries
- Stage 2: Passive income caters for essentials (food, clothing, and shelter).
- Stage 3: Passive income caters beyond essentials (more than enough).
- Stage 4: Passive income caters for essentials and luxuries.
I assume you can rank your current financial status using this framework. You should find yourself in one, or the combination of two or three stages. Let’s now look at each of the 15 ways how to become financially independent.
1. Your Identity And Vision
Your life is pretty much occupied with work, so staying out of work does not necessarily mean you are financially independent. Elon Musk, one of the world’s richest, still works, despite the level of wealth he has acquired.
Your identity is the bedrock of a fulfilled life even in your finances, which in most cases, comes with financial prosperity and, ultimately, financial freedom. When you recognize your identity, you find your purpose, gifts and talents.
Although this process might take a while for some people, it could be a life hack that makes financial independence possible while pursuing your vision, interests, calling, or purpose.
2. Skills
For many people, the steps on how to become financially independent rest on active income at the early stage. Regardless of your interest, you would need active income through entrepreneurship, or a salary-paying job.
Over time, you would have amassed enough money to build a passive income stream, which should gradually begin to meet minor financial demands. Hence, a high level of skill is necessary to foster a high active income. Soft and technical skills would be needed at this stage and should be honed with intensity.
3. Competence
Your level of competence embodies your skills, knowledge and consistency in delivering outstanding results in your organization. While you may have the necessary soft and hard skills, competence demands that you stay consistent in your delivery of an excellent job.
Consequently, you eventually position yourself for promotion, which in turn, impacts your earnings. Competence is one of the core ingredients for career growth and should be taken seriously.
4. Work Hard But Work Smart
While many people echo “work smart”, it is also important to equally work hard. Working hard should not be replaced with working smart. If you deliberately want to be financially independent, the combination of hard and smart work would amount to early achievements in your financial goals. To earn more, you work harder by putting in the effort to be of value to your employers or clients.
Meanwhile, you work smarter by figuring out how to get the same quality result with less time, while utilizing your time for something else valuable, such as reading books on finance, partaking in events or courses that equip you with knowledge to ensure continued growth in your finances, amidst the health of the economy in which you are domiciled.
5. Save And Invest
I understand you must have heard this a couple of times. To be candid, you really can not bypass the habit of saving and investing when it comes to pursuing your financial goals.
Sometimes, I call this an open secret, because of its cliche nature but yet, it is practiced by everyone who has become financially independent.
6. Budgeting And Planning
Through timely budgeting and planning, you may save yourself from irrational spending and wastage. Your budget should outline your income level and expenses, which would give you a sense of control over your finances. Thereafter, you map out a plan to achieve your budget and follow it with discipline.
Being financially independent does not happen by luck. This is more reason there is such a thing as wealth management or family office because wealth could be mismanaged and evaporated in just a few years. Planning is indeed important for your financial journey.
7. Increase Your Income
In figuring out how to be financially independent, managing your expenses might not be enough. You have to increase your income, which could be achieved in a couple of ways.
You could increase your income through changing jobs, or getting a side job, with at least, the beerest level of conflicts of interests. I would advise you to get a side job without conflicts of interest.
You could also increase your income through advancement in your academic degree and bagging certifications related to your career, as this sets you up for managerial roles, where you get to earn more.
8.Maintain strategic relationships: Humans are social beings, so we all need each other one way or the other. However, you have to be mindful of the company you keep.
You should invest in the right relationships, particularly the kind of people that feed you with the right information, and encourage and influence you correctly.
When you keep company with people who share similar goals and aspirations as you, you are likely to attain better results compared to pursuing your goals all alone or hanging around people that do not share mutual aspirations as you. This would demand deliberate actions.
9. Value Your Time
Time is indeed precious. The act of procrastination should be seriously addressed, preferably, avoided. 5 years counts, 3 years counts, 1 year counts, 6 months counts, 3 weeks counts, 1 day counts, 1 hour counts.
While you may want to schedule some time for rest, relaxation or fun, you should do those in moderation, keeping in mind that you are on a journey in which time is of the essence.
It takes some time to read, study and assimilate investment opportunities, especially in the fast-paced tech world we find ourselves in. It takes time to research opportunities. It takes time to grow anything of value. Also, it takes time to attain a peak level of financial independence.
10. Nurture Your Mind
In retrospect, I have learnt that the things we mind tend to have much more impact on our lives. For example, if I decide to read news about African politics daily, I could be easily agitated to stir a discourse on matters related to the African political system, which could gradually take center stage in my daily meditations.
The repercussions of this is that I would most likely be ignorant of the things that I could benefit from, like investment opportunities or seminars on personal finance.
Observably, the feeds on our social media pages tend to present posts we are fond of liking, commenting or spending more time reading compared to others.
Similarly, what we yield daily tends to present itself to us more. If you desire to know how to be financially independent, you should be able to sieve out unwanted information.
By reading certain books, watching selected movies, choosing your associates, and listening to the right people, amongst others, you would be able to maintain focus and better deal with distractions.
11. Reflection And Assessment
Considering the peak of financial independence as a point where passive income caters all your wants and needs, including luxuries. At this point, you would have also grown in values, principles, character and habits that have become part of you which beautifully sustains that level of freedom.
Financial independence is a journey. You could attain a level and maintain, or strive for stage 4 as we described earlier. The point is, it is a journey and at every point, you may need to step back and evaluate how far you have come, assessing your right and wrong decisions, seeking efficiency and smarter ways and re-strategizing where necessary.
12. Take Care Of Your Health
What is the point of practicing delayed gratification, only to find yourself spending heavily on your health, particularly a health issue that could be avoidable?
The happiness that comes with financial freedom also captures your health. In taking care of your health, it would be helpful to plan for rest, while eating the right diet and engaging in a body fitness routine.
13. Liability Management
In managing your liabilities, you should first identify personal items that are of liability to you, In other words, items that drive cash out of your wallet. This can be quite subjective.
For example, as a student, especially in your first or second year in the university, a car could be a liability to you since you probably do not have an income stream, instead, you completely or partially depend on sponsorship from your parents or guardian.
So you spend more on management, which includes repairs amongst other expenses. However, as a full time employee, you probably need a car to ease your daily travel, which saves you time and provides some sort of security and privacy.
If you carefully analyze your personal belongings or assets, you may realize that some assets are not what it is to you at that time, hence, you reduce unnecessary expenses by doing away with liabilities.
14. Asset Management
This is quite the opposite. While liabilities drain you, assets add value to you, either in monetary terms or in kind. For example, a nice ride could make an impression on some of your business clients, which could attract some big projects to you.
Especially when you are in a client-facing role, you are expected to look good and present yourself with honor. This makes people comfortable around you and helps you connect better with like-minded individuals.
15. Keep Records
Lastly, journal keeping may not be common to many, but it helps to track your progress in your journey to financial freedom. This involves you reevaluating your net worth as you move one step closer to gaining financial independence.
You also take records of your assets and liabilities per time. You could also track your expenses and detect trends that should be corrected or trends that should be harnessed.
How Do I Make Myself Financially Independent?
As I have stated earlier, the quest to know how to be financially independent rests on your perception of what independence means for you. The stages of financial independence suggest different levels you could attain, and perhaps, a mix of two or three.
It does not happen overnight. It takes time, and focus. I will refer you back to the 15 ways highlighted above. You have to give yourself to learning, unlearning and relearning.
More importantly, you have to be true to yourself as to what could be attainable, the time it would take and what you are ready to give to build your finances to that measure. Remember, freedom is not free.
What Is The First Step To Becoming Financially Independent?
There is no formula regarding the first step, but you are likely to start by understanding the psychology of money, your definition of financial independence, and your current net worth.
- As an employee, you want to be sure you are in an industry that is rewarding in terms of monetary value, while you figure out how to make the most from your active income.
- As an entrepreneur, it could be a bit challenging, because the success of your business would be a significant determining factor. Hence, you want to be at the top of your game and have several plan B’s.
- As a beneficiary of generational wealth, your concerns should first be tilted towards management, preservation and growth.
How To Become Financially Independent At 18
At 18 years old, you are probably rounding up elementary or secondary school, or starting college or university of which you will be financially dependent on your guardian or parents. Hence, it is unlikely to be financially independent at this age.
However, it is one of the best phases of your life to acquire knowledge and learn skills that could earn you some money. You should also take advantage of this stage to get yourself acquainted with traditional investments like stocks, bonds, and mutual funds, amongst others.
How To Become Financially Independent In Your 20s
It would be quite interesting to see an 18 or 20-year-old seeking ways on how to become financially independent. Well, what works for an 18-year-old should also work for a 20-year-old guy or lady.
However, there are a few differences. If you are in college or university, you may find yourself around peers like you, which would give you an advantage to sell your skills or engage in merchandise, or retailing goods to students.
You could leverage skills like graphics design, tutor certain courses you are good at, or engage in tailoring, whichever works for you. While this source of income may not fund all your needs, you have moved a step closer to being financially independent, as you would not completely depend on your parents to provide for all your needs and wants.
How To Become Financially Independent As A Woman
Becoming financially independent as a woman is quite as possible as it is for a man. There are no peculiar steps for women to become financially free.
Even while some women may be relaxed due to their husband’s sense of responsibilities, it takes desire, focus and sacrifice to be financially independent of which a wife is not an exception.
Conclusion
I hope you found this insightful and helpful. Here are few takeaways:
- Working hard should not be replaced with working smart. The combination of hard and smart work would amount to early achievements in your financial goals.
- By reading certain books, and watching selected movies, you would be able to maintain focus.
- It takes some time to read, study and assimilate investment opportunities, especially in the fast-paced tech world we find ourselves in. It takes time to grow anything of value.
- If it is attainable for anyone, you can also achieve success in your finances.
