How To Become Independently Wealthy And Reach Your Financial Goals
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None of us want to live paycheck to paycheck and yet 80% of Americans do. With the proper strategies, a little bit of patience, and a clear blueprint for success, you too break the cycle that has entrapped millions of employees. In this post we are going to give you a workable guide on how to become independently wealthy.
Do not rely on winning the lottery.
We have come up with an ultimate cheat sheet that will help you become independently wealthy. Make sure to read it with an open mind.
What Does It Mean To Be Independently Wealthy?
Before we itemize the steps involved in reaching “Independently Wealthy” status, we first have to understand what this term really means. By understanding the true meaning of the goal we’re trying to reach, we can better follow a map to get us there.
When we’re talking about financial independence, it does not necessarily mean that you’re wealthy. Instead, it refers to the status where you have enough income and assets to survive your day-to-day life without having to work anymore. This means that you are capable of buying both your wants and needs without having to worry about its prices or how much money you have left in your bank account.
Independently Wealthy doesn’t mean you don’t work. It means you don’t NEED to work. you work if you choose to.
What Keeps You From Becoming Independently Wealthy?
Two primary reasons hinder you from achieving this dream. For one, you might be earning less than what you are spending daily. Second, there might be a chance that you owe more than what you own. Let’s explore what these two scenarios.
You Spend More Than You Earn
Keep in mind that you won’t gain the independence you are aiming for if you spend more than you earn. The inability to cut back on your expenses will hinder you from becoming wealthy.
According to studies, one of the main factors that influence your spending habits comes from the neighborhood that you live in. The financial choices that you make align with the financial culture that you see from the people around you.
For instance, if you live in a village full of million-dollar homes, then there is a significant possibility that you will prefer Audis and BMWs as your cars. If you live in a neighborhood with the majority of the people in the middle-class status, then there is a higher chance that you won’t go to high-end restaurants just for your dinner.
As a person, it is only natural to try to fit in with the people around you. However, you should also take into account your capability. There are individuals out there who live in Million dollar homes in wealthy neighborhoods and drive luxury cars but whose finances are in very poor shape. they purchase everything on credit and live well above their means. Despite this, they refuse to change their financial habits just because they are ashamed to do it.
You Owe More Than You Own
Reflect on your life and determine the level of debt you have accumulated. If you have come to the point that you feel you’re drowning from all of them, then you need some serious intervention. The best way to address this problem is to accept your situation first and realize that debt (bad debt specifically) only hinders you from living a good life. There is good debt of course: such as business debt where the money you borrow generates more money and mortgage debt (in a world where interest rates are low) to give your family a good home in a good neighborhood near good schools.
But even good debt needs to make sense.
When the primary source of debt comes from credit cards, your financial future becomes very bleak. Not only do many people not track their expenses and over-spend because of the ease of use of credit cards but the interest rates on these cards are so high that it is difficult to pay off both the interest and the principle.
Strategies For Getting Independently Wealthy
So how do you become independently wealthy?
Only a few wealthy people are born with a silver spoon in their hands. Other independently wealthy individuals have worked hard to achieve their current financial status. Below is a blueprint to becoming independently wealthy.
Develop The Right Mindset
Everything comes with the right mindset. If you don’t believe that you can get there, then there is a significant probability that you won’t. The right attitude and mindset will inspire you to develop the discipline and responsibility you’ll need to become independently healthy. And yes, you will need discipline and responsibility.
Cut Down On Your Expenses
The lower your expenses are, the easier it will be to become wealthy.
The best way to analyze your spending habits is by creating a list or using a budgeting app. List down all of the category expenses you’ve had in a month and answer the following questions.
- Does this expense improve my way of living?
- Can I survive without this spend?
- Does it a positive value to my life?
- Can this expense create more income and wealth for me (an investment)?
From here, determine which ones are necessary, not necessary, or are questionable. For those unnecessary expenditures, it is recommended to cancel buying these products immediately. Under the questionable category, you may state scenarios where it is acceptable to spend on it or not. Lastly, for those expenses you deem necessary, consider if there are better options. Can you negotiate with the vendor to lower the expense or is there another similar service that is more cost effective?
With this in mind, here are some of the best strategies you can turn to when decreasing your expenses.
- Cook your own meals every day instead of eating out at expensive restaurants.
- Change your vehicle into something that consumes less fuel and has a low cost when it comes to maintenance.
- Manage your electricity consumption
- Avoid shopping for expensive items or only go to the mall when you need something
- Limit the use of your credit card.
- Watch your credit card and bank statements daily
- Set a limit for your self for each week based on your budget
Establish A Strict Savings Culture
Aside from cost-cutting, you also need to ramp up the way you save every day. That’s right, you need to save EVERY day. It is vital to save so that you will have money for emergency and so that you can invest some money to create higher returns (this is how you get wealthy).
So, what’s the best strategy for saving? As per the book “Pay Yourself First“, here are some tips that you can follow.
Do It Regularly
Do not have the mindset that you will only save whenever you have extra money. Instead, it should be the other way around. You have to save first, and the excess cash that you have will be used for your expenses. Doing it regularly will give you the habit of setting aside money that you can use as your original fund.
Come Up With A Savings Percentage
Regardless of your financial situation, ensure that you will take a cut from your income consistently. An ideal savings percentage is around 20 percent to 30 percent per month. So, if you receive $2,000 per month, automatically set aside $400 to $600 monthly to put on your savings account. You can use the remaining $1,400 to $1,600 for your bills, food, and other necessary expenses.
If you think that the range of 20 to 30 percent is too much for you now, then you can start with a much lower savings percentage. However, you have to make sure that you will increase this gradually once you have adjusted to your situation. Some people use the 10 percent savings rate for three months, then increase it to 15 percent in the next three months. They do this until they reach the whopping 30 percent.
Open A Freedom Account
Contrary to its name, a freedom account does not refer to an account where you can get the money ready for spending. Instead, it is an account where you place all of your savings. Make sure not to withdraw from here unless it is an emergency.
Read Budgeting 101 by Michele Cagan, CPA to gain some more tips on saving and managing your money.
Invest Your Money
Once you have cut down on your expenses, there is a big chance that you will have a surplus of cash monthly. This amount of money can be allocated to either your savings or your investments. The only downside with depositing it into your bank account is the fact that it does not earn that much money. Interest rates only range from 0.4 to 1 percent in this avenue.
A lot of people might say that putting money on bank accounts is the best option since it is safe. At the same time, you won’t lose any cash from it. Since inflation exists, you actually are losing money from keeping your money in a savings account, because your money is not making enough money. Let’s say that you save $1,000 per month and deposit into an account for ten years, with it earning 1% annually. All in all, you will receive approximately $6,000 as a “profit.”
While $6,000 isn’t an insignificant amount of money, having it only earn 1% over 10 years has caused you to lose some of your purchasing power due to inflation. Inflation results in higher commodity prices. Therefore, the money you gained will most likely be cut in half because of the effects of this economic factor.
With this in mind, here are a few tips that you can take into consideration when investing your money.
Set Your Goals
Before you dive into the deep waters, make sure that you know where you want to go. Set a realistic goal that will direct you with your investment agenda. You also need to know the technicalities about investing so you can draft a strategic plan with how you are going to achieve your said goal. Do you want your money to pay you every month through dividends? Do you want it to be invested in growth stocks over a long horizon? Setting the right financial goals for you will help inform you of how you should invest your excess cash
Determine How Much Money To Invest
Traditionally speaking, you should always keep a few months of savings aside in an emergency fund. After that is set, allocate a monthly amount to automatically invest. If possible it is better to make these investments automated so you don’t forget to do it.
Hire An Investment Firm, Financial Planner, or Learn to Do It Yourself
Certain investments needs expertise, but oftentimes you can manage your own money by using tools like Personal Capital or Mint and manage a portfolio of ETFs or Mutual Funds on your own. But if you are looking to invest in individual stocks, you might want to speak with a personal investment firm or a financial planner so they can guide you with the whole process.
If you do go the route of a financial planner, maximize it. Ask questions about the different types of investment accounts so you’ll know how you can allocate your money. You should know and understand the difference between money market accounts and mutual funds before investing cash on these services. And you should learn why these professionals should be hired in the first place and what costs are associated with using them.
Check out Benjamin Graham’s book entitled The Intelligent Investor to give you a brief idea of how you can start and manage your investments.
Believe it or not, you can always become independently wealthy. Keep in mind, however, that you will not achieve this overnight. You need to follow the strategies mentioned above so that you’ll make this enormous goal. Just have the proper mindset, discipline, and patience, and you will get closer to becoming independently wealthy.