It is an irony of life that everyone desires financial independence, but not everyone will attain it. Not because it is an impossibility, but mostly because not everyone will do what it takes to achieve financial abundance.
Financial independence or financial freedom means different things to different people, yet we can all agree that it means having enough money to pay your living expenses for the rest of your life without having to work full time, and still have enough saved that an emergency won’t be devastating.
Many people achieve financial independence through saving and investing over the years, while others build successful businesses that generate income even while they sleep. There are many ways to reach financial independence, no matter where you are today.
In this piece, I want us to look at some wealth-generating habits that can help you become financially free, but first, let’s look at the stages of financial independence.
Stages of Financial independence
Stage 1: Financially Dependent
This is where most of us start out. At this stage, you are totally depending on another person or a menial job to survive. A financially dependent person has a lot of expenses, but little or no income at all. To leave this stage, the person needs to first get a good job, and then study up on personal finance.
Stage 2: Financial Novice
Here is the stage where you’ve just started earning, but you still aren’t in control of your expenses, maybe because you’ve been racking up some debt or your expenses still exceed your income.
To leave this stage, you need to be more frugal, avoid debt, reduce your expenses, and seek additional income sources.
Stage 3: Financially Precarious
This is the stage where you have stopped accumulating debt, your expenses have reduced, and you’re building up your emergency funds. At this point, you are much better financially than you used to be, but you can still progress. To upgrade from here, you need to pay off your debt and build an emergency fund that can cover 6 months of expenses.
Stage 4: Financially Balanced
In this phase, you experience some financial stability. Your emergency fund would have been well established and in this phase debt management is under control. However, there is still room for improvement here too. So, to turn things up higher, you will need to invest.
Stage 5: Financial Progress
This phase is much closer to financial independence, it is where you invest. Here, should an emergency or an unfortunate situation like job loss or a crisis like the COVID-19 occur, it would not cause financial ruin because you have investments to ride out a financial storm for multiple months. To step up from here, you need to build a portfolio of passive investment with a focus on investment income.
Stage 6: Financial Independence
Freedom at last. This phase is where your basic living needs and other expenses are covered by cash flow from your investments like rental income, rents, dividends, interest, and so on. At this stage, your investment income is much more than your expenses and now you can buy anything you want, travel anywhere, and upgrade your lifestyle on your own terms–without ever worrying about breaking the bank.
This is the stage that we all should strive to get to, the level of financial abundance where you have a surplus–an abundance of cash flow whereby you can be more philanthropic to causes or events that contribute positively to the lives of others.
There are many ways to reach financial independence, and it’s not just for the wealthy.
Some habits that can make you financially independent.
- Avoid debt as much as you can, especially consumer debt.
- Ignore the Joneses (those are the friends and family you love to prove to of your status), ignore them, and focus on building your finances instead.
- Cut down on your expenses, spend less than you earn.
- Learn to budget your finances and always save first.
- Buy assets.
- Invest now and keep investing.
That said, I hope you have learned one or two things from this piece. Last, I mentor people to help them create wealth and become financially independent through investing in properties, and the capital market (Forex trading).
Would you like to get a free 30 mins to get on a call with me to discuss ways to attain financial independence?