Becoming financially independent isn’t just about stuffing away a chunk of cash and skimming off 4% each year. It’s more of a mental, emotional and spiritual journey.
Not forgetting the maths behind how to structure your (semi) retirement.
- Start Being Savvy With Your Income, Expenses and Investments
What can you do to increase your income?
You could apply for more senior positions in your company, or ask for a pay rise. However, have you considered consulting/ turning self- employed?
If you have the relevant experience, you can seriously increase your wealth via this method. You can do this by optimising your taxes, increasing your income and making savings on expenses. What’s more, you can fulfil some dreams by working abroad. Intrigued? Read more.
More income is great, but you actually have more control over your expenses.
Yes, you have to start living below your means to maximize your savings. (It’s your savings rate that will ultimately propel you towards financial independence).
The larger the gap between your income and expenses, the more money/ savings you have to contribute to your portfolio.
Again. More income + less expenses = bigger portfolio
Also, make large, consistent, contributions to your portfolio/ investments over time to maximize returns.
I emphasize the word, ‘consistent’ for specific reasons.
As the difference between socking away nothing and 1000gbp per month is a staggering 534,353gbp over a 20-year period (a compounding and fees calculator was used to make this calculation/ comparison).
Enough said. This step alone will be enough to catapult you to financial independence.
Invest your money in different asset classes i.e. property, dividend growth stocks, index funds, crowdinvesting etc.
All it takes is for someone/ the government to change the rules.
And that great investment doesn’t return the same income the way it used to.
Also, you have to take into consideration, sequence of returns. If you’re relying on the 4% rule (i.e. selling 4% of your portfolio every year), and you experience a bear market. Well, your fund will start depleting using this method.
Hence, different asset classes weather you from recessions/ bear markets and negative compounding.
Spread the risk and the path to financial independence will be safer and smoother one.
3.Choose a Complementary Partner
You need emotional support on your journey to financial independence. But you also must be aligned and beating from the same drum.
If your partner demands a new designer handbag every so often, a fancy meal every weekend and several trips to the Caribbean every year, it’s just not going to work.
Although it helps, there’s much more to a prospective life partner than their contribution towards their annual fund and share account or pension allowance. We must look deeper, beyond their finances. But…they must have some financial savvy.
Hence, having quality communication, not long after the casual dating stage about personal finances can help alleviate unneeded stress further down the line.
At the same time, if you both stuff money away into a pension, investments and live more frugally, then this will be a truly wonderful partnership and journey to financial independence.
Financial independence isn’t rocket science, but it takes discipline, grit and perseverance to conquer it. Nevertheless, you can skyrocket your path to FIRE by implementing these 3 tips above.