Financial Independence: What It Is and How to Get There
Meet Chad. As a 22-year-old college student, Chad is feeling confident that he’s well on his way to having a great life ahead. What with more than enough college funds (thanks to his parents for investing on education!) left in the bank to get him through college without any hitch, with fairly decent grades, and with just two more years to get a degree —yes, Chad will definitely have a fighting chance to be successful in life after he graduates, right?
Well, it’s true that having a college degree these days will give you an edge in the job market; but, to be honest, it’s actually just the first step. To be truly successful in life, you have to be financially independent. No, we’re not just talking about not having to depend on your parents for monetary support. True financial independence may not mean the same thing for different people as we all have different goals in life. But, in general, it basically means having enough money to be able to live comfortably for the rest of your life.
That said, young adults like Chad will definitely face an uphill battle as soon as they step out into the real world. Even if they’re lucky enough to immediately land a high-paying job (which can be pretty hard to get, realistically speaking) after they graduate, they’d have to think about monetary obligations such as paying student loans, high consumer prices, expensive rents, and such just to live independently. And if you do get a high-paying job, do you really think your mere income could cover all these expenses and still have enough left for you to be able to save for your future, be financially independent, and be able to retire early?
Yes, achieving financial independence may seem hard in such dire financial situation but it’s certainly not impossible. It’s just a matter of clearly setting your goals and of course, carefully setting a plan to achieve your goals. So how can you be financially stable in your 20’s? Here are some helpful tips:
Create a realistic goal.
First things first, you have to have an achievable goal like determining how much money you can save in say, ten or twenty years or at what age you’re planning to retire. This will give you a realistic perspective on how you can achieve your goal. It will also help you manage your current and future income. You should also expect that the bigger your goals are, the bigger the sacrifice you would have to make to achieve such a goal.
Make step-by-step mini goals.
Of course, your ultimate goal is to be financially independent, but you can actually get to it, little by little and step by step by making “sub-goals.” This way, your road to achieving financial independence wouldn’t be too overwhelming as you can have a feeling of gratification and achievement every time you achieve a sub-goal. You can do this by making a list of sub-goals which are achievable through small steps. Here’s an example you might want to try yourself:
- paid off debt (paying personal, credit cards, bank loans, student loans, etc.)
- income increased (through job promotions or annual pay raise)
- controlled spending habits (through limiting shopping, going out with friends, eating in expensive restaurants, etc.)
- purchased insurance (including life and retirement plans)
- investments (through businesses, stocks, and other income generating investments)
- increased saved money
- financial independence
- retirement (by forty?)
Commit to your goal.
Okay, this may sound like a cliché (and it is!) but bear with us. Commitment is definitely key to financial independence. It’s all about discipline, really. If you don’t have the discipline needed to actually achieve your goal/goals, you would certainly have a hard time controlling your spending urges and you would end up spending more than what you’re earning.
Update your goals regularly. If, for instance, you’ve reached a certain sub-goal—say, a salary increase—would you stick to saving the same amount? For you to be able to reach your ultimate goal of being financially independent faster, you should always make it a point to regularly re-assess your finances and change your spending/saving habits according to your financial capabilities.
Create a safety net. If you’re living paycheck to paycheck, it will be better if you set up an emergency fund. This can certainly help you out in the
event of an emergency situation. We’re not talking about just serious emergency situations here. Having an emergency fund allows you to have something to rely on financially if unexpected expenses (such as needing to repair your roof or wanting to go on a vacation when you can’t handle the stress at work) arise. Ideally, your emergency fund should be able to cover your living expenses for a month. So you should start saving for it as soon as you can.
Achievement unlocked! Once you have done all these, the only thing to do is hope for the best. Sure, having enough moolah tucked for rainy days for you to be able to live comfortably for the rest of your life is something we all aspire, but true happiness still comes from within—and it all boils down to your life goals. Being financially independent is just a (sort of) device that allows you to live a happy and comfortable life. And that should be what Chad is aiming for as early as now.