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Declare Your Financial Independence

July 8, 2015

If you’re like us, we’re working towards financial independence so that we can retire early, but early retirement and financial independence are not necessarily synonymous. Financial independence simply means you have the freedom to do what you want with your life without depending on your current job or income stream to sustain your life.

What are your financial goals? Do you want to retire on track at 65, or are you hoping to retire earlier? Prefer to work on yourself or your community? Looking to travel more? Have the freedom to stay at home with the kids or an ailing parent? Whatever they are, you have to evaluate what your money is doing and what you’re doing with your money.

So, in celebrating the recent July 4th (more relevant for our American readers), why not declare your freedom, your financial independence now? Like Credit.com says,

This midway point of the year can be a great time to evaluate your financial health and consider ways to improve it.

How do you achieve financial freedom? How can you make certain you don’t NEED your job to sustain your life?

Track your net worth.

Mr. Saver just did an article on the importance of tracking your net worth, but in summary, using a tool like Personal Capital can help you track your assets, wealth, and expenditures to make sure you are on the right trajectory (i.e. not spending more than you make).

Practice with a No-Spend Month and/or a Financial Fire Drill.

Again, we’ve talked about these practices in previous blog posts, but if you can successfully make it through one, or both, of these purposefully difficult financial situations, then you’re capable of living your life under budget and financially independent.

Budget and live on less.

A no-brainer and another dead horse we beat, but keeping up with a budget, whether YNAB, a notebook, or spreadsheet, we believe a budget keeps us honest and responsible. Some people, like Mr. Money Mustache, don’t use a budget, but we aren’t that bad-ass (and we’re (wo)man enough to admit it).

Invest

Without making wise investments, it’s unlikely that you’ll achieve any sort of financial independence. Whether you’re investing in stocks, real-estate, or even your own business, there’s no better way to build your wealth.

One of our favorite ways to invest our money these days is through investing in stocks and bonds. We use Betterment to automate our investing and keep our portfolio optimized with a diversified portfolio of Vanguard index funds. Over time, we can reasonably expect an average return of 6% a year. That’s far superior to your typical 1% interest savings account. If you placed $10,000 in one of these savings accounts and let it be for 10 years, you’d end that time with a little over $11,000. However, if you placed $10,000 into index funds, you’d have around $17,000 in 10 years.

The more you can invest, the better. If you can exceed the measly 15% savings rate so common these days and recommended by Dave Ramsey, you may just see yourself retiring well before your 65th birthday, breaking free from the rat race on your own terms.

Once you know you could be free from the job — whether or not you want to keep working (full or part-time), travel, volunteer, or drink lemonade on your porch — you can do you because you are financially i-n-d-e-p-e-n-d-e-n-t.

 

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  • https://cdnmoneymatters.wordpress.com/ Jen Collins

    I always considered being financially independent more being free from other’s support (parents, partners), rather than freedom from relying on your job for income – that I would call retirement!

    I don’t know how MR. MM goes without a budget, I need something to rein in my spending! Thank God for YNAB.

    • http://savemoneydammit.com Save Money, Dammit!

      That’s a great point, Jen! While our definition of financial independence is rooted in early retirement (which depends on not NEEDING a job for income), others’ definitions can certainly vary person-to-person, situation-to-situation, and goal-to-goal!

      Mr. MM is definitely bad ass, but we agree, 100%, TG4YNAB!