A Clinical Psychology Review study shows a strong relationship between financial debts and mental disorders, depression, drug dependence, and suicide.
The study also showed individuals with depression and anxiety are three times more likely to be in debt.
This points to the effect that your finances can have on your mental health and overall well-being.
Let that sink in!
The question then is, how do you stay mentally strong and how do you become financially independent?
In this article, you’ll get to know almost everything about financial independence and how you can achieve it.
What Does It Mean to be Financially Independent?
In simple terms, to be financially independent is to have enough wealth to afford your desired lifestyle without working.
Of course, this does not mean that you must stop working if you’re financially independent. You can decide to keep working. Maybe because you love what you do or to keep yourself busy. However, your decision to work is just that – a choice, not a necessity.
Whatever the case, you have no debts and can meet all your financial obligations. When you meet all these requirements, you’re financially independent.
How Much Money Do You Need To Be Financially Independent?
Generally, there’s no specific amount of money you need to have to be financially independent. And because there are varying circumstances, the answer cannot be the same for everyone.
It depends on individual lifestyles and preferences and other external factors like family and economic conditions, e.g., inflation.
So, to calculate how much money you need to be financially independent, consider these factors. Still, it can be challenging to carry out these calculations yourself.
How Can You Become Financially Independent?
You can take the following steps in your journey to becoming financially independent:
1. Have a plan
Carefully think about your plan for financial independence. Consider the age you’d want to retire at and how much you want to have at your retirement. That amount should be large enough to sustain you throughout your lifetime.
After considering these factors, you need to figure out how much income you’ll have to make every month to meet your goal.
2. Save a portion of your income monthly
You may choose to begin by saving 20% of your income every month. Naturally, the more income you make, the more you’re able to save, even if the percentage remains the same.
3. Learn to draw budget plans
For you to save successfully, you need to have a plan to control your spending. Without one, you’ll find yourself digging into your savings whenever you run out of cash. So, draw up a budget, and more importantly, stick with it.
4. Have multiple sources of income
You should have several sources of income – mainly if your primary source cannot fund your financial independence goals.
5. Keep an emergency fund
Emergencies are just that – emergencies. They’re unexpected. However, they don’t have to meet you unprepared.
6. Make investments
There are several investment options at your disposal. If you are unsure which one to venture into, contact the Art of Financial Planning for expert advice.
Assets vs. Liabilities
Any property that belongs to you and can provide you with economic benefits is an asset. It can range from cash and equipment to lands, buildings, and so on.
On the other hand, a liability is something that you are financially obligated to pay for or do. So, it usually plays out as debts and taxes to be paid, either on a short-term basis or a long-term.
To be financially independent, your assets must be greater than your liabilities.
Income vs. Expenses
Income is the money you earn from your job or business deals. Expenses are the costs you incur in making your income. And to achieve financial independence, your expenses should never run higher than your income.
How do I find the balance between saving for tomorrow and living for today?
Here are a few tips to help you discover the balance between saving for tomorrow and living for today.
Understand the figures
Knowing the current state of your finances will help shape what you do — whether it’s a save-up-more or a spend-less.
You should be able to track every amount of money you spend. Map out which ones were well spent, and which ones were just for the satisfaction of your wants.
Live within your means.
Taking out loans and going into debt would destroy your chances of financial independence. It becomes even more ludicrous to take loans to “keep up with the Joneses.”
But by living within your means, you get to save up more and spend less.
Finding the balance between living for today and saving for tomorrow can be a bit challenging. That’s why we’re building a community to help you. As financial experts, we can give you the advice you need to achieve financial independence.
Our goal is to help you create, manage, and protect your wealth. Join us today.
