How To Become Financially Independent

 

What does Financially Independent Mean? 

So we are all on the same page, when I say financially independent, I mean having enough money (savings, investments, social security, pensions) to live comfortably for the rest of your life without having to work (unless you want to).  

 

Now of course "live comfortably" will vary greatly from person to person, depending on your priorities.  Some, like me, have very basic needs.  

 

While others may prefer a more extravagant lifestyle (year round travel, expensive cars and homes, etc.).  Or they may have dependents.  Obviously, they will need more money than people like me.  (No judgment here, just stating a fact.) 

 

Why Become Financially Independent? 

Unless you inherit money or win the lottery, achieving financial independence takes time, hard work, sacrifice, and requires a solid plan.  And patience.  Lots of patience.   

 

But the rewards are worth it.  You not only gain confidence and a sense of accomplishment, but you obtain security as well.  This enables you to live life on your own terms and not have to answer to anyone (within reason). 

 

Unique Challenges Women Face 

I don't want to alienate the men, but let's face it, women (especially women of color) often have to deal with some unique financial challenges. (The Women’s Guide to Financial Independence) For Instance:  

• Women are paid less (82.3% of what men earn in 2022). 
• Children can disrupt a career (wage penalty of 4% per child, 10% for women of color). 
• Women live longer than men (typically 8% longer). 

Know Your Finances 

Whether single, married, or in a relationship every woman (and man) should know how to manage money.  As well as, have their own money and credit history. (Financial Independence For Women: A Step By Step Guide)   

 

Even if you’re sharing expenses with someone else, you should take part in the money management.  It's your life too and knowing this stuff is important.  After all, something could happen to your partner. Or, they may not have your best interest at heart. 

 

For example, a friend of mine turned all the finances over to her new husband.  He then proceeded to embezzle her life savings in order to pay his secret gambling habit. That's a worst case scenario, but it happens.  At least look at the statements each month. 

 

How to Become Financially Independent 

Okay, now for the point of this article.  How do you become financially independent?  To start with, below are some basic tips (7 Steps to Achieve Financial Freedom and Retire Early):  

1. Clearly define your financial goals and make a plan. 
2. Track and analyze your spending. 
3. Create a budget and live within your means. 
4. Pay off your debt. 
5. Start investing. 
6. Create multiple streams of income. 
7. Save for the future. 

In other words: spend less, save and invest more. 

 

Personal Experience 

Before I start bragging about how I became financially independent, let me begin by saying, I had a lot of help: 

• Both my parents taught me early on how to manage money (budget, save, pay bills).   
• They paid for all four years of my college tuition and most of my living expenses.  (I’m lucky I’m so old, as college prices have increased about 180% in the last 40 years.) 
• They bought me my first used car for college graduation.   
• They also loaned me some money for used cars 2 and 3, so I could avoid financing.   
• And they gifted me the money for a down payment on my first condo when I was 29.  

As you can see, my parents gave me a great financial head start.  So what was my contribution to financial independence?  (I was beginning to wonder that myself.)  All right, here's what I did:    

• I saved my money.  My dad set up a savings account for me when I was about 11.  Every Friday he would deposit my babysitting money for me. 
• I tracked all my income and expenses, even as a child.  These days I use an app (HomeBudget). 
• I always lived within my means.  I traveled, but at first it was just every other year and on the cheap.  I bought my first new car the year I turned 50. That one I did pay cash for all on my own. (Aren't I a big girl now?) 
• I had one credit card that I always paid in full each month.    
• Other than two mortgages, I never had any debt.  (Thanks again, mom and dad.)  And I paid both off early, avoiding a lot of interest payments. 
• I worked part time jobs for extra cash. 
• I never had children.  (Saved a lot of money there.) 
• I started investing in my mid 20's. My workplace set up and managed a 401(k) for me, with a 4% matching contribution and profit sharing plan.  I didn't have much to contribute in the beginning, but I at least did the 4% match. This went on for over 30 years.  (Love that compound interest.) 
• In my 30's I also started investing outside of my company's 401(k). 
• When I went to graduate school in my 30's I was working full time and only took 1-2 classes at a time.  I paid as I went, so no loans.  The Master's degree helped advance my career. 
• In my 50's, with no debt, and no longer traveling, I contributed the max, or as much as I could afford, to all my investment accounts.  
• I educated myself on finance with seminars, podcasts, videos, books and articles. (Did I understand it all?  Hardly.  So…) 
• I consulted with professional financial advisors to help me figure things out.  

You don't have to do all these things to be financially independent.  This is just what I did.  And I didn't do it alone.  I don't know of anyone who became financially independent all on their own. 

 

Anything you want to add?