Financial Fireworks: 7 Strategies to Help You Build Financial Independence

Financial freedom is within your reach! Follow these seven strategies to get you on the road to success.

By Rebecca L. Bennett

 

You’ve probably heard the term “financial independence” (FI), but do you know what it means and how to achieve it?

FI, which is also known as “financial freedom”, is the point at which your savings and investments could comfortably carry you through the rest of your life if you stopped working. For many U.S. workers, that goal may feel far-fetched — like it would require a major windfall to even come close to having enough.

But while it’s true that FI can be difficult to reach, it can be done, particularly if you are earlier in your career and already have a solid retirement plan like TCDRS in place to help you save for the future.

Here are seven strategies that will help you build FI:

1. Get a Good View

Before you can develop a plan to achieve FI someday, you first need to understand your unique financial situation. First, take inventory of your income, expenses, savings, debt and investments. Next, figure out where you want to go. Identify any ultimate goals you have for your financial future, such as being able to retire or having enough passive income to only need to work part-time by a certain age.

2. Light the Fuse

Once you have a good picture of your finances and vision, it’s time to build a budget and get serious about creating multiple streams of future income. Add saving and investing contributions into your budget and set up automatic deposits to your savings and investment accounts wherever possible.

 
3. Look Up

Getting a good view of where you are now and where you want to go will help you build your FI plan. Start by mapping out a series of stepping-stone goals to guide your progress and maintain your trajectory, and then calculate how much you need to save and invest each month to reach those milestones. Try to challenge yourself (by eliminating most splurging, for example) while setting reasonable expectations and leaving a little room for fun.

4. Burn Bad Debt

There are many schools of thought on when and how to pay off good debt because consistently making timely payments on home and car loans, for example, can help you build credit. However, experts agree you should always eliminate bad debt, such as credit card balances and accounts with high interest rates, as soon as possible. The more debt you pay off, the more income you will have to save and invest.

Building an emergency fund and a rainy-day fund will prevent you from needing to take on additional debt or delay your FI goals to pay for emergencies.

5. Stay Pointed in the Right Direction

Pursuing FI will require spending discipline and a long-term commitment to living below your means. Cut out unnecessary expenses and avoid lifestyle inflation. Each time you receive a raise, think before you make any unnecessary upgrades to your lifestyle. If you saved and invested the excess income without changing your spending habits, you’d be that much closer to meeting your FI goals.

6. Fan the Flames

Another great way to expedite your progress toward meeting your FI goals is to devise ways to increase your income by picking up a side hustle and/or making smart investments.

7. Don’t Fizzle Out

Keep in mind that achieving FI will require years of focus and discipline. Prioritize progress but check in with yourself often to ensure you aren’t in danger of burnout and take short breaks when needed. The steadier you are, the likelier it is you will maintain the momentum to stick with it long-term.

Personal Finance