Financial independence may mean different things to different people. Generally, you can think of it as having enough income and savings to cover your essential expenses, and comfortably have the lifestyle you desire. Achieving financial independence may seem like a long journey, but there are some ways you could fast-track the process.
Here are some effective ways to meet your financial targets and achieve the goal of financial independence sooner:
Avoid lifestyle inflation
We all have essential expenditures such as monthly rent, mortgage, utility bills, healthcare expenses, and groceries. However, it’s crucial that you know how to separate your needs from unnecessary wants. If you can’t do that, you might fall for lifestyle inflation.
Lifestyle inflation is a common situation that keeps people’s financial goals out of reach. It refers to an increase in spending with an often disproportionate increase in income. For instance, think of a broke student getting their first paycheck. The morning Starbucks coffee that was previously a luxury might now feel like a necessity.
You can escape lifestyle inflation by creating a realistic budget and meeting your savings goal each month. In addition, you can try practicing mindful spending and understand how your emotions impact your spending habits. Mindful spending can prevent you from splurging on unnecessary expenses when you’re having a bad day and feeling worse later on.
Work toward becoming debt-free
Paying off debts is a stressful task, but being smart about it can bring you closer to your financial goals. To start, list your current debts in the order of largest to smallest amount. List the corresponding interest rate for each of the debts too.
Next, figure out the best method to pay off the debts. There are two main types of strategies: snowball or avalanche. If you choose the snowball method, slowly pay off the smallest debt first to get them out of the way and then move towards settling larger debts. This method gives you “small wins” from the start and psychologically reinforces the habit of paying off debts.
Alternatively, the avalanche method involves paying off the debt with the highest interest rate. This method helps you to save the most in interest payments. Regardless of which method works best for you, remember that the final goal is to become debt-free.
Get smart about saving
Saving diligently is an essential part of the road to financial independence. However, most people don’t realize that a silent thief is eroding away their hard-earned income—inflation. Inflation is making your savings lose its purchasing power with time. In addition, most traditional banks today don’t offer enough interest to combat the effects of inflation.
The good news is you can open high-interest rate savings accounts at digital banks or neo banks. These banks have reduced overhead costs because of online operations and can therefore afford to offer high interest and low commissions.
Start investing regularly
Investing is an excellent plan to compound your money over the years. Nowadays, there are many means of investment— stocks, mutual funds, bonds, real estate, and many more. Figure out the type of investment that best matches your cash flow and financial goals. After that, set aside a reasonable sum of your income to invest each month or as frequently as you’d like. Do not neglect to invest in yourself too. Take some time to learn the fundamentals of investing and make sure you have a diverse portfolio.
Financial independence is a dream for just about anyone. Luckily, being in the 21st century with the convenience of digital banking, it’s easy to build and keep track of your financial growth. So make use of this accessibility to fast-track your journey towards financial independence.