Financial independence implies that you can indulge in any monetary transaction, be it purchasing commodities, services, or starting your business, without worrying about your savings.
However, every household must make its ends meet before even thinking of achieving true financial independence. The coronavirus pandemic revealed the vulnerability of most households around the world and spelled the need for improved financial independence.
Tips To Achieve Financial Independence
Consumer debt is an enormous problem, and you must improve your situation with respect to it. After paying off those high-interest debts, it is time to follow a few steps that lead to true financial independence. These are listed below:
Adopting a Thrifty Lifestyle
Controlling your finances is a no-brainer towards achieving financial independence. However, several people often tend to be unaware of the various sources that drain their savings every month.
Meticulously tracking your expenses is the first step towards controlling redundant expenditures. It’s essential that you consistently cut down on them to build your savings.
You must reduce lifestyle-related expenses and direct the money you’d spend on them into profitable investments. These investments will generate income, which will further propel you towards being financially independent.
Another reason why you must track your expenses is that you can do so for every single month. Financial independence happens when your net worth surpasses 25x your annual expenses.
Fuel up Your Earned Income
For most people, a financially stable career is the best way to increase their income. Some fields are exceptionally suited to push you on the journey towards financial independence. While such careers may require several years of education, the pay rises quickly within the first few years. Some of them include –
- Financial analyst, investment banking, or other big finance jobs
- Healthcare – physicians, nurses, and more.
- Engineering and IT
However, these careers have a high burnout rate; therefore, professionals pursuing these paths must prepare for early retirement. Those pursuing a career in medicine, such as physicians, anesthesiologists, orthodontists, pharmacists, and a few others, all make a very high income.
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Consider Investing in the Stock Market
You can invest in the UK stock market through exchange-traded funds (ETFs), which provide investors with varied exposure in particular security that can be traded just like a stock.
The most prominent ETF in the market is the MSCI United Kingdom Index Fund (EWU); however, there exist several other funds with significant exposure to the region, such as –
- BLDRS Europe 100 ADR Index Fund (ADRU)
- BLDRS Developed Markets 100 ADR Index (ADRD)
- STOXX European Select Dividend Index Fund (FDD)
- SPDR DJ STOXX 50 ETF (FEU)
Investors who wish to follow a more direct approach can also acquire stocks on the London Stock Exchange (LSE). Some famous UK stock brokerages comprise companies like Banco Santander’s Abbey Sharedealing and Barclays Stockbrokers.
If you can increase your profits in the stock market every year, you can aim to be very well off within a few years. However, you must not consider trading for the short term, as the stock market can be volatile without an effective long-term trading strategy in place.
Invest in Rental Properties
The stock market is brimming with potential, but it might consume too much time before you accumulate a significant balance in your bank. An alternative way to raise wealth quickly is by investing in rental properties. Here is a blueprint that you can follow –
- Purchase a starter home and lease it out when you move.
- Invest in some more rental properties.
- Raise a cash-flowing rental business and get commercial loans to grow.
After building your portfolio with such investments, any bank would be willing to work with you. However, if you do not wish to become a landlord, you can try your hand at real estate crowdfunding.
Establish a Business
Building a business might be the most laborious process to gain financial independence. You have to work hard to make a name for yourself amidst the competition, and you probably will not make a substantial income for years at the start.
Businesses do not guarantee your success, and many entrepreneurs never make it big. However, if you have a fruitful idea and the right approach, you can make it big and subsequently build your savings.
When attempting to start a business, most people hesitate and succumb to continuing with their salaried jobs. However, there are several business options that you can consider to give yourself a successful head start.
For instance, you can set up an eBay store, drop-ship products from Amazon, and assume the minimal risk. By utilizing all the latest technologies available, you can decide from an abundance of profitable ways to open a side business.
Harness Your Creativity
Another great way to generate passive income is to establish intellectual property. Harnessing your creativity and picking a niche can be fruitful if you can find a market for it.
Polishing a particular skill or talent that you are blessed with into usable products viable in the market will help you generate income with minimal investment. If your products have lasting value or your services are legit, you will earn royalty income for years.
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Receive a Pension
In the United Kingdom, part of the residents’ savings are deducted for their retirement, which is categorized into three primary divisions –
- Personal pensions.
The state grants a basic pension provision to ensure that citizens have enough to get by even when they’re old. Until 2010, men over 65 and women over the age of 60 were permitted to claim state pension; however, since April 2010, the age limit for both has been brought to the same level.
Financial independence is not a brief journey, and you must follow the tips mentioned above to make your dreams come true. The above paths are not straightforward but can deliver results if you are dedicated and execute them right.
Your first step must always be to clear off any debts that linger on, and then consider investing your capital in properties or any other business ideas. It is imperative to have a plan in mind before traversing down any career path. Good luck!