Many people believe that being financially independent means having a stable job that pays an excellent salary or not depending on others to pay daily expenses. Of course, that working in a job that pays a fair monthly income where you don’t have problems in paying your expenses is very important. But you should know that this doesn’t sum up the dream of financial independence.
The truth is that what is essential is that you maintain your standards and quality of life with the money you have available without having to give up on certain dreams and plans because you can’t afford them. In other words, achieving financial independence is much more than making thousands of dollars (considering that the more we make, the more our lifestyle changes and therefore, our expenses might also increase).
What you need to understand is that regardless of what you make now, in order to be independent there are a series of practices that you need to start doing and this is what today’s post is about.
Do you want to know what the 7 practices to achieve financial independence are?
Control your expenses
Use organizational spreadsheets
Be careful using your credit cards
Consider undertaking lucrative extra activities
Create achievable goals
Learn how to invest your money
Read this post to the end and you will learn what is essential to achieve this much-desired status.
1. Control your expenses
As we said at the top of this post, becoming financially independent means having a good quality of life with your earnings; therefore, the first practice you need to start now is controlling your expenses according to your earnings.
What does this mean?
When we think of control, we tend to believe that we need to stop spending on what seem superfluous or that only serves for our personal satisfaction, but this is not what we mean.
We all deserve to be able to spend a little of what we make in what makes us feel good, whether it means eating at a different restaurant, buying new shoes, investing in a hobby or traveling. However, whenever you spend, think of your income.
The calculation is always the same, regardless if you have a high or low income. You can never spend more than you make. This sounds obvious, right? But it is actually harder than we think.
Most times, this is what we do: Let’s suppose that you earn $2,000.00 a month. When we think about using this money for personal expenses, we remember that we have a full amount and therefore, we end up spending more than we should. The truth is that, before deciding how much you have to invest in something other than the essentials, you need to analyze your primary expenses.
Think first about the deductions that will be made to the amount of $2,000.00, such as income tax, social security or private retirement fund, trade union fees, etc. After all these deductions, set aside the amount you spend every month on rent or house payments, utilities, food and all the other expenses required to maintain a household. The amount left over after you pay all the primary expenses is what you need to control better.
Before you go and spend it all, set some of it aside to keep or to invest (we will talk more about this below), and define a percentage to spend on yourself. You might be not able to take that trip you were dreaming about in 3-months’ time, but if you know how to control your savings well, that trip might be feasible in 8 months or a little later, for example.
2. Use organizational spreadsheets
Spreadsheets are great for giving us a clear picture of what we’ve been spending our money on. And in order to become financially independent, it is important to know how much you make and how much you spend.
In the first practice, we talked about learning how to control your expenses. Tip number 2 complements the first one. Whenever you create spreadsheets to organize your bills, whether they are daily, weekly or monthly, you manage to have better control over your income.
Create a table with all the amounts you spend during the month, even if you spend a few cents on candy; when you manage to document all the money going out, it becomes easier to create strategies that can help you save more.
If you aren’t sure how much you spend per month, you are probably financially out of control and you won’t be able to find a way of better apportioning your expenses. Therefore, document your entire cash flow even if at first it is only personal.
3. Be careful using your credit cards
A major mistake many people make is to think that the credit card limit is the amount they can spend monthly. But this is not true, after all, when you buy on credit this means that you don’t have the amount to spend at the moment and that you will have to pay it the following month.
Here’s an example:
Let’s suppose that your net monthly income (after deductions) is $2,500.00. You already know where you have to spend this money and you are able to pay your primary monthly expenses. However, there isn’t any money left to spend on yourself and what is left over, you invest or save.
For some reason, you have a credit card with a $1,000.00 limit. Since you don’t have anything left from your monthly income to spend, you decide to use your credit card and believe that you can use its entire limit.
This is where the major problem lies. Some people are able to control their expenses by thinking how much they make but when it comes to credit cards they end up straying and spending money they don’t have. And the more you use your credit card, the more the debt accumulates; not including very high bank interest rates, which will increase your debt even more.
So don’t make credit card purchases on impulse. Whenever you need to use it, carefully analyze if you will have the money to pay the credit card bill the following month without having to draw the amount from your savings.
4. Improve professionally
Every time we move up a rung in the professional ladder, we get rewarded, and when this reward is in our salary, it is even better. So try to always improve professionally to increase your income.
Invest in your education, take courses that can help you in the work you perform (a good opportunity for those who don’t have the time to go to educational institutions are online courses), attend events in your market segment and lectures directed to your niche.
Don’t be afraid to grow and change jobs. It is always good to face a new challenge and this might be another step towards achieving your financial independence. But be careful not to change jobs only because of a higher salary because you can end up doing something you don’t like, which will discourage you. (If you are unmotivated we have a text in this blog that teaches 9 forms of self-motivation).
5. Consider undertaking lucrative extra activities
If you have a natural gift to play an instrument, do arts and crafts, interior design or any activity other than your daily job, how about considering a lucrative extra activity?
Of course, it cannot be an extra burden to your routine. That’s why you will need to find something you already know how to do that won’t affect you. But if you can reconcile an extra activity on the weekends with your normal weekly activities, you will have another source of income at the end of the month.
And since you are able to do everything you need with your fixed income, use this extra money to invest or save it in order to become financially independent in the future (since, if you haven’t won the lottery, it is unlikely that you will obtain this independence overnight).
6. Create achievable goals
Creating specific goals is great in order to achieve something we want. When we talk about financial independence, this is also important.
Think about what you want to achieve economically in the short, medium and long term, but remember to establish achievable goals. This way you can focus on saving and when the moment comes to invest your money in your plan there won’t be major surprises. You are already prepared to spend what you need.
However, a very important thing is to never relax on your goals. Just because you were able to take the trip of your dreams doesn’t mean that you can stop saving. As soon as you achieve one goal, create new ones.
This way you will always have a reason to stay financially stabilized and controlled, which will help you achieve financial independence.
7. Learn how to invest your money
The last practice in our list that you need to start using to achieve your financial independence is to learn how to invest your savings.
Making financial investments isn’t very common but you need to think about how the money you’ve been saving can yield interest. You might prefer to leave your money idle in a savings account yielding low interest; but the problem is when we start to use our savings a lot.
We aren’t trying to tell you how you should invest your savings, but if you’re interested in the subject, talk to those who know how to invest your money in something that will be profitable for you. Always think like an entrepreneur and find new opportunities that will help you grow.
It is time to have financial independence
As you have seen, you can become financially independent and with these 7 practices we showed you, you will be prepared to achieve this dream.
Don’t fool yourself and believe that your independence will happen overnight. We have said that in order to obtain it you will have to be very focused on your goals, know how to spend carefully and learn how to control all the money coming in and going out of your account. And don’t forget the most important thing: always keep your earnings higher than your expenses.
Do you have any habit for achieving financial independence? Share it with us in the comment box below!