People don’t become financially independent overnight. It’s something that happens gradually, as one starts earning a decent amount of money consistently and learns how to budget the way that his income, large or small, is enough to sustain his living.
Obviously, becoming financially independent means different things to different people. Some view it as providing for your own living without your parents’, spouse’s or any other person’s support. Some add to that aspect being financially stable, not relying on credit cards to cover basic expenses and living debt-free. Therefore, based on how you understand financial independence, your road toward it will include different steps.
Moreover, the first purchases and big expenses a young adult has to make (like, buying a car, moving out for the first time, furnishing a rental home, saving for the house, buying one) often turn reaching financial independence into the struggle that’s too difficult to cope with.
Steps to become financially independent and stable
1. Maximize your income and aim for career growth
You need to start producing a decent income in order to become financially independent and stable. Being consistent and having a couple of income sources is important as well. That’s why if your main job doesn’t pay enough, strive to improve your skills to get a position and a salary raise. Look for an outside job you can do from home or during your free time. Dog walking, babysitting or freelance writing are among the perfect side jobs and businesses that may bring you complementary income.
2. Budget long and short-term
Assessing your spending habits, short-term and long-term needs and sticking to a well-grounded budget is the key to being financially independent and eliminating the need for external financial support. The ultimate goal is to:
- track and measure your expenses realistically;
- cut them wherever possible;
- divide your income into different expenditure blocks;
- pay bills immediately or automatically;
- budget flexibly to be able to provide for unexpected costs and vary your expenses without breaking the budget;
- ensure a positive difference between income and expenses;
- spare some money on ‘wants’ rather than ‘needs’ not to feel too constricted, as that often leads to people failing the budget plan and dropping out of the habit;
- save a feasible amount of money, but each month.
3. Live beneath your means to achieve financial independence
You won’t become financially independent and secure if you’re hardly able to make the ends meet, not mentioning if you’re guilty of relying on credit cards to fill the holes in your basic budget. No matter how little your monthly earnings are, you need to learn to cut costs and live not within, but beneath your means to save up and don’t feel stressed in case of financial emergency.
4. Save money whatever the income
Being able to save some money on a regular basis is one of the first signs of becoming financially independent. Save 10-15 percent of your weekly earnings even if you don’t make too much. Increase the amount of money you save as you start receiving greater profit/income.
5. Pay off your debt
Don’t let your student loans or credit card debts creep up on you. Turn eliminating debt into one of your primary financial goals and don’t engage in another debt (like a mortgage) before you close off the existing loans. If you’re not too good at minding your finances, don’t let yourself own a credit card, as it is one of the main reasons of financial dependence.
6. Learn about taxes
According to professional tax preparers, most people don’t claim all deductions and credits they have the right to. Therefore, understanding the taxes and knowing how to make the most out of tax returns is something every adult willing to become financially independent and decrease the tax stress. It’s particularly crucial if you’re self-employed or own a business. Go to HireRush.com to ask a tax preparer look into your finances and help you out with your taxes.
7. Create an emergency saving fund
As a responsible individual, you should be prepared to emergency situations that require extra spending, as well as the possibility of losing a job and having to spend a month or two in search of another one. If you truly want to remain financially independent, an emergency saving fund is a must.
8. Control impulse spending
Otherwise, you won’t be able to stick to your budget and you’ll lack financial independence. If you think you need the item you just saw and really want to get it, test yourself and put that item on a 30-day ‘waiting list’. During that time, you’ll be able to save up for the thing you want and think if it’s really worth purchasing. There’s a high chance that it won’t look as good in a few days as it did just yesterday.
9. No online shopping unless necessary
Browsing through online stores is something a lot of people do casually while watching TV, sitting in a restaurant, waiting in a line at the doctors’ office… Pretty much anywhere. And even if they say they’re ‘just looking’ and that they ‘are not going to buy anything’, they increase their ‘want list’, boost the impulse spending and often end up getting things they don’t really need. While online shopping is undoubtedly convenient and provides a lot of good deals to save money, resist the temptation and don’t visit online stores unless you absolutely have to buy something specific.
10. Don’t borrow to finance your lifestyle, but to invest
Borrowing money to finance a mortgage or start your own business is completely acceptable, especially when you’re in a good place to do so. On the other hand, if you have to use a credit card to afford to pay your bills or rent, buy groceries or go shopping, you need to rethink your spending habits and put yourself on a stricter budget.