How to Become Financially Independent [11 Proven Strategies] (2024)

Everyone wants to become financially independent.

But a whopping 80% of people will never achieve this goal.

Why?

Because they have high debt levels and a lack of financial literacy.

(And because they haven’t read this awesome guide!).

So, if you want to join the 20% that becomes financially independent, you’ve come to the right place.

Let’s dive in.

Financial independence happens when you have enough wealth (like money or income) to cover your expenses without working.

It’s achieved by investing in appreciating assets like stocks, or real estate, and having enough passive income to support your lifestyle.

In other words, financial independence is freedom.

You can do whatever you want – without worrying about how money could impact your plans.

Financial independence is like breathing a fresh breath of crisp air.

It’s pure, it’s freeing, and you have ZERO worries.

Financial independence is often associated with a movement called FIRE.

(FIRE = Financial Independence Retire Early)

Now, take a look at the chart below:

The money needed for financial independence depends on your lifestyle choices.

While you can become a FIRE mover by retiring early, most prefer to work later (and save and invest more).

Working later means you can live more comfortably during retirement.

Ready to join the FIRE movement and become financially independent?

Here are 11 proven strategies to help you become financially independent:

This is one of the most important steps:

Ok, what does that jargon mean?

Index Funds are not designed to outperform the market.

They are low cost.

They are low stress.

And over the long term (historically speaking) they have always performed well.

Even Warren Buffett (the 5th richest person in the world) recommends investing in index funds.

So how do you start investing in index funds?

And if you don’t have an investment account yet, consider using Robinhood 👇

It’s free to open an account with Robinhood and new members get 1 free stock.

Robinhood also provides 100% commission-free stock, options, and ETF trades.

The potential money you can make from a side hustle is unlimited.

In fact, 54% of Americans now have a side hustle.

Why the popularity?

Because your work could let you go at any moment and you’d be left without an income stream.

That’s why it’s so essential to find and build a side hustle that could add an extra income stream.

So how do you start a side hustle?

If you’re selling a service like consulting, you could earn an extra $1k to $2k per month.

Is this easier said than done?

Yes. But if it was easy, everyone would do it.

To be above average, do what the average won’t do.

One of the most important strategies is to build a budget.

Think of a budget like a road map:

You can’t get from Point A to Point B without guidance – your road map.

Your budget does exactly that – it guides you from your current financial situation to where you want to be.

Sadly, only 4 in 10 U.S. adults have a budget – which is shocking considering that 78% of Americans live paycheck to paycheck!

A budget builds the foundation for how you treat your income and expenses.

I thinkYou Need A Budget [aka YNAB]does a great job when it comes to visually breaking down your current spending patterns versus how much you should be spending to reach your future financial goals.

The best part?

New YNABers save more than $600 in their first 2 months – and they save more than $6,000 after their first year.

An emergency fund is essential for financial stability.

It’s a liquid account that has cash equal to 3 to 6 months’ worth of your living expenses.

Without an emergency fund, you might have to take on high-interest debt to pay these surprise expenses.

So how much cash should you stash in your emergency fund?

Now, your emergency savings fund should be liquid – meaning it shouldn’t be invested. It should just be a cash account.

To get the biggest bang for your buck, consider opening a high-yield savings account through Raisin 👇

A high-yield savings account is the same as a regular savings account at a bank (FDIC insured, online access, etc.).

The only difference is that you earn a higher interest rate with a high-yield savings account.

For example, the national average savings account interest rate is 0.59%.

High-yield savings accounts on Raisin offer over 5% APY.

An emergency savings account is critical to your financial health and it should be one of the first things you should aim to build before focusing your financial efforts elsewhere.

Investing in yourself is essential if you want to become financially independent.

Why?

Your return on investment is unlimited when you invest in yourself.

Now, I don’t necessarily mean go straight to college, go into debt by several $10,000s, and start working a job.

The cost of the course, book, etc. will likely pay for itself in the future.

Remember this: The more you learn, the more you earn.

Keeping up with the Joneses is a losing battle.

The proverbial “Joneses” is the family that:

• Drives the latest cars
• Lives in the biggest home
• Takes the nicest vacations
• Buys the hottest tech gadgets

Stop competing and stop trying to buy the most expensive items.

If you want to beat the “Jones Syndrome,” create a budget.

A budget is a millionaire planning tool.

An important lesson that I’ve learned is that income does not equal wealth.

In fact, I’ve met a couple (a lawyer and his wife) who earn $900,000 per year, are in their late 60’s, and they will have to work for the rest of their lives because they have saved only $100,000 over their lifetime.

On the other hand, I’ve seen assistants earning $50,000 a year who managed to save and invest over $200,000 in just a few years.

To live an above-average life, do what the average person won’t.

In this case, the average rule of thumb is to save between 10% to 20% of income.

If you want to achieve financial independence, you should aim to save at minimum 50% or more of your income.

In fact, if your savings rate is 50%+, studies suggest that you’re more likely than other groups to become financially independent.

I’m saving (and investing) just over 70% of my income – and I still feel like I can be doing a better job by increasing my savings rate to 80%.

The point is this:

To become financially independent, you need to increase your savings rate.

High-interest debt robs you of your freedom and makes it impossible to build wealth.

If you are stuck with debt, you do have options:

• Consider debt consolidation
• Consider a 0-balance transfer
• Pay off the credit card with the lowest balance first*
• Pay off the credit card with the highest interest rate first*

*While continuing to make minimum payments toward your other credit cards, if you have any.

Debt consolidation may be an option for you if you’re struggling to make payments toward your credit card but are disciplined enough to not take on more credit card debt in the future.

And the good news is that debt consolidation companies often give you lower interest rates, more favorable terms, and a better loan pay-off schedule than your original debtors.

One of the most popular debt consolidation platforms is called Upgrade 👇

Upgrade gives you a fixed rate and term with a clear pay-off date.

This can translate into savings while eliminating the surprises of high-interest rates that can change at any time.

The faster you pay off your high-interest debt, the faster you’ll reach financial independence.

Becoming financially independent means you’ll probably have to sacrifice some of your daily luxuries.

If you’re looking to join the FIRE movement, you should start practicingfrugal living habitsand consider cutting out expenditures like:

• Eating out
• Buying the latest gadgets
• Traveling to hot vacation spots
• Spending money on high-interest debt

FIRE early retirement is not all roses and butterflies.

In fact, you’ll have to trim the fat and likely live a lean lifestyle.

Pro Tip:One effective way to reduce daily living expenses is by analyzing your subscription expenses and whether you actually use these subscriptions.

Although most subscriptions typically don’t cost $100s, the small, recurring charges can make a significant impact on your wallet at the end of the year.

In fact, forgotten subscriptions could cost you over $1,100 per year.

The good news is that you can use services like Rocket Money which will negotiate subscription costs on your behalf to a lower price 👇

If you already have:

• An emergency savings fund
• Paid off your high-interest debt
• Set up your investment account
• Invested in your employer-sponsored accounts

…Then you may want to consider investing in alternative investments.

Why?

Alternative investments could give you:

• Higher returns
• Exposure to other industries
• Potentially achieve financial independence earlier

Just keep in mind that although alternative investments offer high returns, they are also riskier than your traditional investments.

Pro Tip:When you put your money into alternative investments, make sure you would be OK losing the amount that you’re investing.

Alternative investments are risky, often volatile, and some may have you lock up your money for a long time.

The returns you receive from alternative investments could be worth the risk.

Below are some examples of proven and popular alternative investments:

It’s true that you can makea lotmore money by investing in alternative assets over investing in the stock market.

Just remember that a high return also usually means there is a lot of risk involved.

If you’re OK taking more risk, then alternative investments may be the right next step for you.

When you go for a haircut, you expect your hairdresser to use professional tools, right?

You don’t expect your hairdresser to use plastic scissors to cut your hair.

The same goes for achieving financial independence.

The right financial tools can make or break your financial future.

The point is this:

You can’t expect to become financially independent if you’re using the wrong tools.

Why is Financial Independence Important?

The goal of financial independence is to be in control of your finances and not live paycheck to paycheck.

You live life on your own terms, you don’t worry about money, and you escaped the proverbial 9 to 5 rat race.

Financial independence is when you have enough money to afford basic living expenses for the rest of your life.

Pro Tip:Job security is an illusion.

The recent COVID-19 pandemic and the Great Recession of 2008 should have been blinding examples as to why you shouldn’t put all your income eggs in 1 basket (aka your job).

Companies will ruthlessly be watching their bottom line – and if that means they need to let you go to save money, then there’s a high chance you’ll be gone before you know it.

That’s why you owe it to yourself to buildpassive income streamstoday to secure your future income.

Financial independence means sacrificing a little bit today so you can live free tomorrow.

You’ll probably have to give up several luxuries – like buying designer clothes, going on expensive vacations, or buying luxury cars.

If being financially free and living a life without money worries sounds like the ideal life for you, then you’ll know that the sacrifice you make today will be worth it.

Where are YOU on the journey to financial independence?

Consider your options.

Start today.

Your bank account will thank me later.