Financial independence is a state of having enough wealth to comfortably live without having to be too busy working to meet your basic wants. For you to be financially independent, your assets should generate more than you are spending. It entails meeting your needs from other sources other than your primary occupation. Age is irrelevant when it comes to your financial status. Once you have achieved financial independence, you are able to enjoy life without so much worry but you should always be cautious of the inflation rate especially if you are relying on passive income.
Below are several strategies with which you can achieve financial independence:
Asset accumulation for future financial security
An asset is any valuable item which can easily be converted to cash in case of a financial crisis. Asset accumulation can be done through gathering assets which generate revenue until the revenue is greater than the living expenses. It can also be done through gathering liquid assets which can sustain future living expenses. It is always wise to fund your future expenses now by setting aside your earnings as savings. It is said that the money one saves in young age is much more valuable than that saved in old age. Examples of these assets is land, buildings, fixed deposit accounts, stock and bonds among others.
Debts are a way of using your future income to pay for your current expenses. You should also ensure that the interest you pay is not more than what you are earning on investments. One way of ensuring that you are debt free is by always spending less than you are earning and that can only be achieved by practicing financial discipline. You should always have a clear and precise budget which should be followed to the letter. In case you are forced into debt due to unavoidable circumstances, you should always make it a priority to pay it back as soon as an opportunity arises. Carrying cash to use in your daily transactions is one effective way of avoiding debt as compared to using credit cards whereby you can transact even when you have drained all your money.
Reduction of expenses
In order to achieve financial independence, you can opt to live a simple life. This can be done by avoiding unnecessary expenses and a luxurious lifestyle. A lot can be saved by simply spending on necessarily what is basic and putting all other earnings for either investment purposes or as savings. This can be viewed as being mean to oneself but it is all for a good course.
Have passive sources of income.
Passive income is income that is received regularly with little or no effort required. It can result from capital growth or negative gearing. Examples of passive income which brings about financial independence include rental property, royalties, fixed deposits in bank accounts, stock and bond dividends , ownership of businesses, life annuity, pensions, affiliate marketing, alimony, real estate, oil leases , interest from deposit account among others.
Increased sources of income
Financial independence can be achieved by increasing the number of income sources. People in white collar jobs with fixed working hours can find other jobs which can be done in the hours they are not in office. Working for extra hours can also be another source of extra income. You can also startup businesses of your own which you can operate in their free time or in which you can employ other people so long as the income earned from that business is enough to pay the employee and there is a fraction of profit that is realized. Incomes from all these sources once pooled together should give you financial independence.
Diversify in your investments options
Diversification in investments simply means that you should not invest all your earnings in one or related fields. As the old saying goes, one should not place all the eggs in one basket. If for example a person invests all his savings in the oil industry and the industry experiences a recession, that person may lose all or most of his investments. To be financially safe, it is wise to spread out your investments in unrelated fields. This way, it might turn out that when one is facing a recession, the other one is in the boom.
Avoid getting in the comfort zone
No amount of wealth is enough. No matter how much you are worth, so long as you have the energy and the opportunity to make more, always aim to make and accumulate more and more wealth. The moment you stop earning and is only spending, you may now be heading towards poverty. The thought that you are rich enough should never cross your mind. There is no single time that you should have enough such that you need not look for more.