When your regular income is sufficient to pay all of your fixed costs, you have achieved financial independence. It’s the state of mind when exchanging time for money isn’t necessary anymore.
If you’ve studied up on FIRE, you know the math behind it is quite straightforward. You should put away more money and put that money to work. Achieving financial independence is a tremendous step that requires a radical adjustment in perspective and way of life, despite the seeming ease of the arithmetic involved.
If you strive to save more money but don’t have any specific targets in mind, you’ll probably end yourself right back where you started.
The first five will get you moving in the right direction. You’ll have the clarity to focus on what’s most important to you and make progress toward your objectives with the support of these three elements.
1. Find your motivation.
Motives for seeking financial freedom.
We are so preoccupied with getting through the day that we forget to pause and consider what really brings us joy.
That’s why the first thing you should do is sit down, take stock, and make a list of the things that really matter to you.
Some examples of these activities may include having coffee with your significant other, reading to your kid, or going on a walk. You will probably make a list of items that don’t cost much money or don’t cost anything at all.
Using the results of this activity, you may determine what aspects of your life are most important and where you might stand to cut down. This will also reveal your end goal: more time to focus on the things that really important to you.
2. Be familiar with the figures.
Find out where you are now. To achieve financial independence, you must have a realistic assessment of your existing net worth and the amount you will need to save.
You should do the math on:
Your current net worth is calculated by deducting your total debts from your total assets.
Your age multiplied by the amount you spend each year is your financial independence number.
You have a clear goal in mind and an idea of the steps required to achieve it.3.
3. Set up a safety net or emergency fund
Create a rainy-day fund next. It need to have enough to cover your present costs for at least three to six months. You should have some cash on hand in case of an unexpected need, like losing your job or having expensive auto repairs.
Incredibly significant progress has been made here. It will help keep you from falling into debt in the face of these unavoidable setbacks.
The antithesis of financial freedom is the stress and worry of living paycheck to paycheck. One aspect of financial independence is the confidence that comes from knowing you can weather a financial storm or even quit a hazardous job if necessary.
You’ll feel encouraged to keep working for financial freedom after you’ve reached this goal.
4. Put yourself out there and become a part of a group
Get involved with other individuals who share your goal of reaching financial freedom by joining groups like FIRE.
Learn about money management and how to become financially independent via books, blogs, and YouTube videos. Participate in local organizations and social networking sites like Facebook and Meetup to get to know your neighbors. All the information, support, and motivation you need may be found in these places and communities.
In our consumer-driven society, it helps to be surrounded by like-minded individuals. It might be lonely to hang out with just those who are following the status quo and don’t understand what you’re trying to do.
Keeping on the alternative route is easier with the support of those who have achieved financial freedom.
5. Begin with what most interests you
Personal money, as the adage goes, is just that: personal. If you’re trying to figure out what to do next, don’t worry too much if the steps don’t add up perfectly; instead, focus on the objective that excites you the most.
For one individual, the ability to put all of their attention on investing is contingent on their having no outstanding debt, and for that reason, eliminating student debts is a top priority. In contrast to what motivates you, maybe investing in the future rather than paying off debt would free you from the burden of the past.
If you’ve set your sights on a certain outcome, and you’ve already made some headway toward it, you’ll be thrilled to see those numbers continue to rise, and that will encourage you to keep going.
So, summing up:
- Find out what you care about and what you want to achieve.
- Figure out what you have and what you’ll need.
- Be prepared for unforeseen circumstances by setting up a savings fund.
- Find out more about the FIRE movement and connect with others who are also making the transition.
- Get things rolling by either decreasing your debt load, starting an emergency fund, or boosting your income. Choose the experience that appeals to you best.
To take the first step toward financial freedom, remember the above five suggestions.