The dream of being financially independent is one that is shared by many people, but achieving this dream can seem elusive and even impossible to some. You may be one of many people who need a regular supply of income to pay the bills, and this means that you cannot quit working or even suffer a setback from a serious illness or another unfortunate event without experiencing considerable financial hardship. Being financially independent can decrease your stress level significantly, but you may not know how to get from your current financial status to the level where you want to be. These are the steps to follow to achieve the results you desire.
Pay Off Your Debt
If you are like many others, you have at least some debt in the form of credit cards, car loans and a home mortgage. Financial independence is achieved when you no longer have to earn money to pay others, so the first step in the process is to pay off your debt. Start with the account with the smallest balance, and pay that balance off in full. Then move your focus to the second largest balance, and repeat this until your debt is eliminated. Keep in mind that a home mortgage can be difficult to pay off, and you may consider using equity in the home to downsize to a smaller, more affordable house at some point.
Build a Nest Egg
Nobody’s life is free of unfortunate events. You do not know when something will happen or what will happen, but you can rest assured that you will have to pay insurance deductibles, medical expenses, home repairs and more at some point. With this in mind,build a nest egg so that you do not have to resort to debt. This nest egg will also prevent you from having to live month-to-month with your paychecks.
Think About Residual Income
Even when all of your debts are paid off and you have a nest egg, you will still need some income in order to live. This may be used to pay for food, gas for the car, utilities, property taxes and other recurring expenses. When debts are paid down, these expenses will be minimal, but they may still equate to hundreds of dollars or more per month. With this in mind, finding a way to pay the expenses through residual income is key. Residual income is income that you do not have to actively work for, such as dividend income, real estate investment income, interest and more. This generally will come from your investments, so purchase investments that will create residual income for you.
Becoming financially independent is not something that happens overnight. It can take many years to complete the initial step of paying off debt, and it can take additional time to build a nest egg and to accumulate the right investments to generate residual income. However, with focused effort, almost anyone can become financially independent regardless of their current financial status and income level.