Money In the Bank: A Complete Guide to Achieving Financial Independence

Do you want to become financially independent? Of course, we all do right? 

Unfortunately, it can be hard to see that goal clearly when we are living for our next paycheck. Recent studies state that 78% of Americans and one-third of British workers live paycheck to paycheck.

What’s it going to take to break out financially and do more than just make ends meet?

Read on as we lay out the 4 important steps to achieving financial independence, starting right now.

1. Change Your Mindset

The reason most people don’t make the initial changes necessary to break the paycheck-to-paycheck lifestyle is simply that they fear change. The fear to make changes in their lifestyle is greater than the desire to become financially independent.

It stands to reason, then, that the first step to freedom is a fundamental mind shift. You have to be willing to make sacrifices in order to get ahead.

Even if it requires getting a life coach, you must not fear the changes you must implement and instead focus on the freedom those changes can bring about.

Sometimes the goal of financial independence can seem too lofty. Don’t fall prey to limiting beliefs such as this. People pay off their debts and grow their wealth all the time.

Ask yourself, “Why not me?” Of course, you can do it. Just take small steps forward every day and you will reach your goals. 

Set a Goal to Eliminate Debt

Becoming financially free doesn’t happen by accident. First, you must set a clearly defined goal.

For example, you might say you want to have all your debt paid off in 24 months, or a time frame that better fits your situation.

Then, break your goal down into monthly and weekly milestones. It’s much easier to see things as daily and weekly tasks rather than a distant goal in the future.

Say your goal is to pay off $15,000 in debt in two years. You must then put an extra $625 towards your bills each month, or an extra $125 per week. You can adjust the numbers and time period to fit your financial situation, but you get the idea.

The point is to make consistent progress, week-by-week until you reach your goal.

Create a Budget

Ideally, budgeting is a two-step process.

First, you must identify where every dollar is being spent at the moment. To help, we recommend Mint, an online app which can import your banking records and categorize all your spending.

Go back six months in your records to help determine areas where spending is needless and can be curbed.

Once you can plainly see where your money is being spent, create a plan to get there in the form of a monthly budget. You can download an outstanding free budget spreadsheet from Google and get started straight away.

Just enter your income and expenses and set spending limits appropriately to reach your milestones. 

Save and Invest Extra Money

The old adage is true: To achieve wealth you must earn more than you need to live on and save and invest the difference.

But when you’re living paycheck-to-paycheck, how do you create a surplus for saving and investing?

You do that by either making more money on the side, or by saving more money or, for best results, both.

Once you have a cash surplus, aim to save at least 10% of your income and build up a three-month emergency savings fund. Once you have enough savings to be able to survive for three months, then submit all extra money towards becoming debt free.

Soon enough, you will become free of all debt. And when that glorious day comes to fruition, you can shift your focus to growing your money.

We recommend implementing the popular 50/20/30 rule of thumb.

That is, a maximum of 50% of your money is spent on essential living expenses. Another 20% goes towards your savings and investments, including retirement and emergency savings accounts.

Finally, 30% of your income would be allocated for discretionary expenses like vacations, dining, and movies.

Many people shorten the time it takes to become financially independent by increasing their savings and investment contributions and cutting back on discretionary spending.

Is Achieving Financial Independence a Realistic Goal for You?

Achieving financial independence is most certainly something you can do. Tackle the initial fear of making changes and get excited about the freedom you will soon enjoy.

Have a clear goal and a plan to get there. Be consistent in your debt payments as you save and invest. As you investing, compounding interest will work its magic and you will grow your wealth faster than you can imagine.

If you enjoyed this article, please check out our guide to achieving a perfect credit score now.