Financial independence is when an individual does not rely on somebody, on work or any mechanism to sustain their lifestyle. Financial independence doesn’t always mean being millionaires . It is more of a case of taking the steps towards becoming financially free to make certain decisions.
Normally, when income increases, spending follows. Again, this comes with the lifestyle choices we make. It is important to take a minute and assess the lifestyle choices we made in the past and the financial decisions we had to make that impacted how we live our lives today. This is then the baseline to call the shots we got on how financially independent we should and want to be.
The good news is, there is no specific time when you should start building your fences to financial independence. It all depends on your decision about how and when you’re starting that. There’s a movement called Fire, which is basically Financial Independence Retire Early. The FIRE focuses more on pensions and investments. It is about taking any income from investments, growing your investment pots and drawing on them later on. Fire ratio suggests a 4% rule. So the 4% rule basically means if you were to draw down a 4%, how long that money would last.
Now the question is, how can we start? This is the thing that you can do for yourself straightaway. Putting some time on this is the key. TAKE a step back and WRITE down all your assets and liabilities. This basically, gives you a closer look on what is actually happening on your finances. This gives you an overview of what you’re spending and how much you need to live off. This gives you an idea of how much income you will need later on in life to support your lifestyle choice. Next, PLAN things you could start shifting towards to change your current lifestyle. Create that early financial independence so that you could potentially retire earlier and enjoy what you got. Finally, MAKE IT HAPPEN.
If you want some help, then you can look at my wealth accelerator planner which has the 4% ratio mentioned above and a more thorough visual representation of your assets and liabilities that guides you through your assessment of your current standing and come-up with a clearer and more realistic future state plan. You can also grab a copy of my book 10 ways to accelerate your wealth, which goes into a lot more detail on some of these things that we’ve talked about today.
Tune in to the podcast for the full episode and find out more about this topic in more detail here.