Do you long for the day when financial worries are a thing of the past? Good news: While achieving financial independence may seem like a daunting goal, it actually may be within your reach. Committing to these actions will help you take control of your finances and work toward your ideal financial future.
What Is Financial Independence?
While there is no set definition for financial independence (also known as financial freedom or financial well-being), the term typically encompasses one or more of the following goals:1
- No longer having to depend on others to meet your current and ongoing financial needs
- Having the financial cushion to afford choices that let you enjoy a certain lifestyle
- Maintaining control over short- and long-term finances with the ability to absorb a financial shock
- Staying on track to meet your financial goals; specifically, to secure your financial future, potentially with the ability to retire early
That last bullet point is known as the Financial Independence, Retire Early (FIRE) lifestyle movement. In this case, financial independence means having enough in your savings and investment accounts — around 25 times your annual expenses — so you can retire early. FIRE devotees are dedicated to saving and investing as much of their paycheck as possible in order to retire long before thetraditional retirement age. While this movement promises freedom and flexibility in the long term, it requires a lot of determination and discipline up front.2
Tip 1: Create a Budget and Stick to It
Developing a detailed budget is a fundamental step toward financial independence. After all, if you don’t know how much money you have and where it’s going, it’s challenging to make the changes you need to reach your goals.
Start by making a list of all your sources of income (salary, bonuses, side gig, etc.) and then track your expenses for a month or two to see where your money is going. One method that can help you build an initial budget is the 50-30-20 budget. That's where you allocate 50% of your income toward necessities, such as housing, utilities, groceries, transportation and debt payments; 30% toward discretionary spending in categories such as entertainment, hobbies, dining out and other lifestyle purchases; and 20% toward savings and investments for short-term needs — such as an emergency fund — as well as long-term savings for future education or retirement.3
Once you have a budget, pay careful attention to how much you spend each month, tracking your expenditures using a budgeting app or even in the notes section of your phone. At the end of the month, determine where you might need to reconfigure your budget to align with your spending or where you can make cuts so you can meet all your obligations.
Tip 2: Live Below Your Means
You’ve probably heard the expression “keeping up with the Joneses,” which means striving for the same financial status your friends and neighbors seem to have. The temptation can be even greater today, as we're bombarded by highly curated images on social media. When you see friends, acquaintances and even complete strangers flaunting lavish vacations, luxury goods or impressive homes, you might feel pressured to match these aspirations, which can lead you to spend money you shouldn’t on expenditures that don’t matter.
One of the key habits of financially independent individuals is intentionally spending less than they earn and directing the surplus toward building wealth. Don’t be tempted to make purchases you can’t afford, whether it’s leasing an expensive vehicle or overspending on clothing. The best way to ensure you are keeping your spending in check is to track every expenditure so you know where your money is going.4
Tip 3: Avoid Impulse Purchases
Impulse buying can quickly derail your financial progress. Before making any purchase, take a step back and ask yourself if it's a true need or simply a fleeting want. Develop the discipline to delay gratification and carefully consider if an item aligns with your long-term financial goals.
One way to accomplish this is to make a 24-hour rule when debating a purchase, especially online where it’s all too easy to click the buy button. If you add it to your cart and vow to revisit it 24 hours later, often the urge to splurge will go away.5
However, when you do make an unplanned indulgence, make sure you track it against your budget so you can evaluate your spending priorities at the end of the month.
Tip 4: Become a Frugal Spender
Embracing a frugal mindset doesn't mean depriving yourself, but rather being intentional about how you spend your money. Look for ways to save on everyday expenses without sacrificing your quality of life, such as checking neighborhood social media sites to see what you can obtain at low or no cost.
Check out your local library to download books and media for free; many even have a library of things, where you can borrow kitchenware, tools, musical instruments and more for free.6
Before you make any purchase, search online to find the best discounts and coupons.
Tip 5: Cut Unnecessary Expenses
Carefully review your spending and identify opportunities to trim costs, whether it's negotiating bills with your insurance or cell phone provider; finding ways to save on necessities, like using a store app at the grocery store; or eliminating discretionary purchases that don't align with your priorities. Take a close look at recurring charges, like gym memberships or streaming services, and eliminate those you don’t use regularly.
Tip 6: Buy Assets, Not Liabilities
When making purchasing decisions, focus on acquiring assets that will appreciate in value or generate income — such as stocks, real estate and income-producing businesses — rather than liabilities that depreciate over time, such as a car.7
Another asset to consider is your current home, which can grow in value if you invest in renovations such as kitchen and bathroom updates or curb appeal enhancements.
Tip 7: Avoid Debt
High-interest debt, such as credit cards, can be an obstacle to building wealth. Make a plan to aggressively pay down these balances, perhaps by consolidating loans or transferring balances to lower-interest options.
Consider tackling your highest-interest debt first since those bills will cost you the most over time.8 For example, if you have multiple credit card balances, pay more than the minimum on the one with the highest interest rate while continuing to cover the minimum payment for all of them. Once you eliminate the highest balance, proceed to the next.
For health and wellness expenses, look into the CareCredit credit card, a flexible way to handle these costs for you, your family and even your pets.*
Tip 8: Maintain a Solid Credit Score
Your credit score is a key indicator of your financial health and can impact your ability to access credit, secure favorable interest rates and even find employment. Maintaining a solid credit score means consistently paying your bills on time, keeping credit card balances low and monitoring your credit report for errors and fraudulent activity. It's important to build and maintain your credit.9
Not sure what your credit score is? With Synchrony Bank's free credit monitoring service, cardholders can receive a free VantageScore® report once a year and sign up for monthly credit score updates through an online account. To access the report, simply register your Synchrony credit card account at MySynchrony.com and opt in for online account management.
Tip 9: Save Aggressively
The foundation of financial independence is built on consistent, diligent saving. Saving 20% of your income — as mentioned in the 50-30-20 budget — is a standard rule of thumb, but you might want to save even more to achieve financial independence earlier.
While it’s important to save for the long term, don’t overlook short-term savings, such as an emergency savings account that can cover unexpected expenses like a medical procedure or car repair. By setting money aside, you won’t have to incur credit card debt to cover the total.10
Adopting a savings-minded lifestyle may require some adjustments, but the sacrifices made today will pay dividends in the future.
Tip 10: Invest Early and Often
Building a diversified investment portfolio is key to growing your money over the long term. Many experts recommend investing 15% of your pretax income, but if that’s too hefty a sum, start with as much as you can and commit to increasing it regularly.11 One way to help make savings a snap is to automate your investments through employer-sponsored retirement plans or automatic transfers to your savings account so you’re not tempted to tap that money as it flows into your bank account.
By starting as early as possible in your career, you can take advantage of the power of compound growth: As the principal amount in your account grows, the earnings on that principal also generate additional earnings that earn even more. In simple terms, the interest your money is earning is also generating interest.12
Tip 11: Focus on Long-Term Goals
Financial independence can mean different things to different people, whether it's early retirement or a debt-free lifestyle. Determine your goal and the amount of money you'll need to achieve it using a specific time frame. Then, you can work backward to set reasonable short- and medium-term goals, which enable you to measure progress and ensure you’re on track for the long haul.10
It's easy to get caught up in short-term gratification, but maintaining a long-term perspective is crucial for achieving financial independence. Consider consulting with a financial advisor, who can help illuminate a path forward based on your goals and financial situation. A financial advisor can help you adjust your plan appropriately as you keep your eye on the finish line.11
Tip 12: Maximize Your Retirement Savings
Contributing the maximum amount allowed to tax-advantaged retirement accounts, such as 401(k)s and IRAs, can provide significant benefits over time. It enables you to reduce your current taxable income while accelerating your wealth-building efforts, thanks to the power of compounding growth within these accounts.11
Not sure your budget can weather a large investment? Many employers offer a match in their sponsored retirement plans, like 401(k)s, where they match a percentage of your contribution. This is essentially free money that will boost your retirement savings without any additional effort on your part.11
Tip 13: Strategically Embrace Opportunities
While it's important to maintain a balanced and diversified investment portfolio, diligently pursuing opportunities can also pay off. This might involve allocating a portion of your investments to assets with higher potential returns, such as individual stocks, emerging markets or early-stage startups. Remember that each person’s financial tolerance is different and can fluctuate based on market conditions as well as your age and time horizon. Be sure to thoroughly research and understand any investment implications, then pay attention to your sensibilities before taking the plunge.13
Tip 14: Build Multiple Streams of Income
Relying on a single source of income, such as your salary now or Social Security later, can leave you vulnerable. Explore ways to diversify your earnings, whether through a side hustle, rental properties, dividend-paying stocks or other forms of passive income, such as affiliate marketing or an online course you create. Having multiple income streams not only provides financial resilience but also compounds your wealth-building efforts.14
Tip 15: Start a Side Hustle
It’s never been easier to launch a side business or take on freelance work to supplement your primary earnings and provide an additional income stream to boost your savings and investments. Options include delivering food, selling gently used clothes and household items online or offering your talents in party planning or graphic design. While a side hustle can provide an extra infusion of cash, it can also enable you to develop new skills and interests that could lead to an entrepreneurial venture down the road.15
Tip 16: Invest in Real Estate
For those with the means and desire, real estate can be a powerful wealth-building tool. Whether it's investing in rental properties, flipping homes or exploring real estate investment trusts (REITs), the potential for both ongoing cash flow through rental income and long-term appreciation can be a valuable addition to your portfolio. While real estate can be a lucrative investment, carefully weigh the potential outcomes before diving in.16
Tip 17: Continuously Educate Yourself
Staying up to date on personal finance, investing and wealth-building strategies will equip you with the knowledge and confidence needed to make informed decisions. Dedicate time to reading books, listening to podcasts and seeking out reputable financial advisors. While there’s a wealth of information available online, remember that not all sources are credible. Research the experience of the source and cross-reference for accuracy and reliability. Consider validating any advice with a professional wealth advisor.
Tip 18: Surround Yourself With Financially Savvy People
The company you keep can significantly impact your financial habits and decision-making. Seek out mentors, join investment clubs or online communities and cultivate relationships with individuals who share your financial goals and can provide valuable insights, encouragement, motivation and accountability — all key contributors to a successful journey toward financial independence.
Tip 19: Seize Opportunities for Growth
Continuously look for ways to increase your earning potential, whether through job promotions, career changes or entrepreneurial ventures. That may entail earning a college degree or seeking out certifications that bolster your professional accomplishments. Continuously strive to develop new skills, take on additional responsibilities and position yourself for long-term growth and advancement.
Tip 20: Build a Strong Financial Foundation
As you assess your ongoing quest for financial independence, assume a holistic approach that addresses both short-term needs and long-term goals. Ensure you have an adequate emergency fund, appropriate insurance coverage and a well-diversified investment portfolio to provide a solid foundation for your wealth-building efforts.
Managing Health and Wellness Costs With the CareCredit Credit Card
If you are looking for an option to help manage your health and wellness costs, consider financing with the CareCredit credit card.* Get the care you want or need with easy, flexible financing options that allow you to pay for out-of-pocket expenses over time. Use our Acceptance Locator to find a provider near you that accepts CareCredit. Continue your wellness journey by downloading the CareCredit Mobile Appto manage your account, find a provider on the go and easily access the Well U blog for more great articles, podcasts and videos.
Your CareCredit credit card can be used in so many ways within the CareCredit network including vision, dentistry, cosmetic, pet care, hearing, health systems, dermatology, pharmacy purchases and spa treatments. How will you invest in your health and wellness next?
Author Bio
Cathie Ericson is an Oregon-based freelance writer who covers personal finance, real estate and education, among other topics. Her work has appeared in a wide range of publications and websites, including U.S. News & World Report, MSN, Business Insider, Yahoo Finance, MarketWatch, Fast Company, Realtor.com and more.
