What does it mean to be financially independent? Well, it’s different for different people. It might mean that you don’t have to rely on your parents to cover your rent every month. Or maybe you don’t want to have to rely on your children to look after you one day. Maybe it’s not having to stress about going into debt if you face an emergency. Or being able to travel more often.
Each person has different circumstances, and financial independence is therefore a very personal goal. You need to decide what it means to you, then you need to work out how to get there.
Here’s your five-step plan.
1. Work out how much you’ve got
The technical term for this is ‘net worth’ — it’s everything you have (your assets) minus everything you owe (your liabilities). Net worth is an excellent snapshot of your financial health and a good indicator of how far you have to go until you’re financially independent.
22seven automatically calculates your net worth based on the accounts that you’ve linked. Make sure to keep your profile updated!
2. Work out how much you need
The amount you need to become financially independent hinges on many things, including your current financial commitments, any dependents you might have, the lifestyle you want to live, your job prospects and more.
If you’re struggling to work it out, a financial advisor can help you determine the actual value and break it down into achievable monthly savings goals.
3. Plan and save
You know how much you’ve got and how much you need, now you need to ask yourself: ‘How do I get there?’ Do you need to create a secondary income stream? Put away a little bit more each month towards your retirement? Try to repay your home loan quicker?
Once you’ve worked out your plan, use the 22seven budget tool to stay on track.
4. Persevere 😬
Becoming financially independent is a massive life achievement. Stick to your plan and make the necessary sacrifices. Don’t give up! Track your progress regularly to make sure you’re keeping up with your goal, even if it sometimes gets difficult.
One day, you’ll log into 22seven to check your net worth and voila! You’ve done it! Don’t forget to celebrate — you’ve earned it.
But hang on…
Once independent doesn’t mean always independent. Life’s a journey, and nobody knows what’s around the next bend in the road.
You might be financially independent now, but it’s not a guarantee that you’ll remain independent forever. You need to re-evaluate your situation once a year (at least) to check that your lifestyle costs are not growing faster than your income. If your costs are getting out of hand, you might need to dial things back a bit, or you might need to push harder in your career or investigate other income opportunities.
Set a goal to become financially independent, plan to achieve it, be intentional about your spending and saving, and track your progress meticulously. Your future awaits!