How to be Financial Independence and Retire Early?

Financial independence is the holy grail of financial objectives. After all, the prospect of not having to work for a living is extremely appealing. Imagine what you could accomplish with your early retirement and newfound freedom!

However, the road to financial independence (or FI) is rarely glamorous. To get to your ultimate objective of financial independence, you’ll need to put in a lot of effort and attention. However, there are several ways that can assist you in achieving your early retirement and financial independence goal.

Basic Concept of Financial Independence

FI RATIO = PASSIVE INCOME/EXPENSE

Although FI is a simple concept, it is quite difficult to put into practice.
There are only two variables in this equation: passive income and expenditure. To become financially independent, we must raise the numerator (passive income) while decreasing the denominator (expense). Unfortunately, neither of these tasks is simple.

Let’s take a look at some expert advice from those who have either already achieved financial independence or are committed to doing so. You might learn something useful that will help you change your financial situation.

Step 1: Find out what your “Financial Independence (FI) number” is.

Your FI number represents the finish line. It’s also what I refer to as the “beginning point” of completely living. It’s your long-term major goal. You’ll become more inspired as you watch your hard work pay off as you get closer to your big goal number.

It’s a fantastic thing to save and invest more. But how much will it cost? That’s where the calculation of financial independence comes in.

Although there are a few possible methods to calculating your FI number, the following basic rule of thumb is a good place to start:

YOUR ANNUAL EXPENSES x 25 = YOUR FI NUMBER

Let’s imagine someone calculated their estimated annual retirement expenses and came up with a figure of $40,000. They’d then double that number by 25 to get their $1 million FI Number.

Why is it multiplied by 25? It’s not because we’re planning on retiring in 25 years. The reason for this is the 4% Retirement Rule.

Step 2: Pay off any debts that are holding you back.

You’ll have more money to save or invest towards your FI journey if you keep your debt under control.

Before you can start paying off your debt, you need to have a good grasp of how much you owe. Gather credit card bills, personal loans, student loans, and other statements to take stock of your debts.

Sort your debts into several categories. Make a list of each debt, including the amount owed, the loan term, the minimum payment, and the interest rate.
It’s crucial to keep track of your interest rates because it might assist you figure out which balances are the most expensive to carry. Now that you have a good sense of how much debt you have, you can start planning tactics to deal with it.

Step 3: Being Frugal in Your Spending

What does it mean to live frugally? The act of being very deliberate with your expenditures is referred to as frugal living. If done correctly, you will be able to prioritize the things that are most important to you. You’ll spend money on the things that are most important to you and cut back on spending in other areas.

Live frugally, more money saved, more money invested, and speed up financial independence journey.

It’s a really straightforward concept: the less money you spend, the more money you keep. That means more money saved, more money invested, and a steadily improved financial status.

Step 4: Increasing Your Earnings

The difference between what you spend and what you invest must be the source of your savings. Frugality, unfortunately, will only go you so far.

You may need to consider the other side of the equation and improve your income to increase your savings at some point. The extra income you generate will make:

Financial independence journey less stressful.
Speed up the ability to pay off debts more quickly
The ability to create an emergency fund or other financial objectives.

Step 5: Invest for the future

The idea of financial independence can easily turn on its head if you follow it blindly. Most people’s first tendency is to save as much as they can – some even manage to set aside half of their monthly wages!

However, simply saving money will not accelerate your journey to financial independence.

Making investments can attain financial independence faster by letting your money work for you.

If you have additional cash after paying off your debts or owing to an increase in income. Now is the time to think about making an investment. You can attain financial independence faster by letting your money work for you by making great investments and using your money wisely.

Step 6: Along the journey of financial independence, remember to look after yourself

It’s all too easy to let your desire to reach FI push you over your bounds. However, pushing yourself too hard might lead to early burnout. In times of uncertainty, having an insurance plan in place can give much-needed financial protection. Regardless of how you feel about insurance, the fact is that you require proper coverage in all aspects of your life. Furthermore, if a disaster occurs, you may be financially crippled if you are uninsured. Getting yourself or your valuables insured, whether it’s vehicle insurance or life insurance, will protect you from the myriad threats that life throws your way. Furthermore, certain types of insurance can also be used as a tax planning strategy.

Conclusion

For each person, the road to financial freedom will be unique. As you go, adjust your spending habits to strike a balance between your immediate necessities and long-term goals.

What are the steps you’re taking for early retierment or to become financially independent? Tell us in the comments what you think!