The 6 Crucial Steps Needed To Achieve Financial Independence

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Just about everybody wants to become financially independent – so why do so few people get there? One of the secrets to attaining financial independence is that it doesn’t usually “just happen”. It starts with a detailed plan, and a willingness to commit to that plan.

To help you get going in the right direction, here are 6 steps to become financially independent.

OK – that quote is from the recently discredited Bill Cosby, but it’s brilliant nonetheless. And it’s an important point too. One of the reasons more people don’t reach financial independence is they’re afraid – not of being financially independent, but of the changes in their lives they’ll have to make to get there.

Taylor R. Schulte, CFP, Financial Planner, Founder & CEO, recognizes it doesn’t happen overnight:

If you are new to the financial planning process, it’s important to remember you don’t need to go from zero to sixty overnight. Just like a fitness trainer would be hesitant to recommend an all-out body straining routine on your first day in the gym, I wouldn’t expect someone to start implementing advanced planning techniques in the first week. Pick a reasonable and attainable goal, and get used to achieving small wins on your track to financial independence.

For example, if you are new to saving, you don’t need to immediately put aside half of your paycheck. Start with a small amount – maybe $20 per pay period – and increase it as you get more comfortable with the process. Starting out slow will help you build the confidence needed for long-term success.

In order to become financially independent, you have to have a serious heart-to-heart talk with yourself. You want to get a few things clear in your head, including:

  • A definition of exactly what financial independence means to you – following someone else’s definition won’t get you there
  • A realistic picture of your current financial situation
  • A realistic idea as to what you’ll have to give up to get where you want to go
  • A realistic assessment of the obstacles in your path
  • A series of goals that will help you to become financially independent

That last point is a discussion all its own…

2. Create a Series of Steps that Will get You Where You Want to Go

Becoming financially independent isn’t a single goal, but a series of sub-goals. This is because your financial life has several facets. In order to reach your overall goal of financial independence, you’ll have to establish goals in the various areas of your financial life, including,

  • Increasing your income
  • Controlling your spending habits
  • Paying off your student loan and credit card debt
  • Understanding your savings patterns
  • Determining your investment objectives
  • Defining your long-term financial goals
  • Purchasing the best life insurance for your family
  • Implementing a legacy plan for your heirs

We’re going to go over each of these categories in some detail, but it’s important you create such a list, with a corresponding goal relating to each individual category. That will ensure you are moving your entire financial situation forward, rather than trying to do it one category at the time.

3. Commit Now that You Will Live Beneath Your Means for the Rest of Your Life

If I can pick one step out of this list 10 that’s more important than the rest, it’s this one. That’s because no other steps you take will be possible unless you fully commit to mastering this one.

The reason it’s so important is it’s the single step that will provide most of the spare cash you will need in order to accomplish most of the other steps. Learning to live beneath your means is one of the central costs of learning how to become financially independent. And if you have not mastered this technique in the past, doing so will range anywhere from uncomfortable to downright painful.

“Setting goals is the first step into turning the invisible into the visible”  Tony Robbins

Jose V. Sanchez, financial advisor at experienced living within his means as a child:

Our parents grew up extremely poor, but wealthy in tradition, family, and faith.  Their nurturing frugality instilled both a tradition of resisting needless spending and the value of time over money.  Setting a goal to champion frugality has made the biggest impact in wealth accumulation in my life.  This value of frugality is a tradition that my wife and I are passing on to our kids.

Delayed Gratification. Get comfortable with that Independent term. No – make that, get very comfortable with it. It means being willing to sacrifice now in order to provide for a better life for you and your loved ones in the future.

If you’re currently struggling with your finances, there’ll be no easy way over this hurdle. You’ll probably have to cut out every expense in your budget that is not absolutely necessary, it even do what you can to reduce those that are.

It could include passing of the annual family vacation, driving your car for years after paying off your car loan, living in your current home even though most of your neighbors traded up, and buying your clothing in thrift stores while everyone else you know shopping at the mall.

That’s just a short list of the sacrifices you’ll have to make. But in making them, you’ll be clearing money in your budget to build savings, to get out of debt, and to invest for the future.

4. Achieve Financial Independence: Block Out the Spendthrifts in Your Life

Are there one or more people in your social circle who you could reasonably characterize as a spendthrift? If so, one of the sacrifices you may need to make to reach financial independence will be to either reduce your contact with this person (or people), or even eliminate them from your life altogether.

I know that sounds harsh, but is also totally necessary. The people who we keep company with can have a profound effect on how we view and spend money.

If you are surrounded by people who “live for the moment” – meaning they mostly spend their money having fun rather than saving for the future, you will inevitably get pulled into that behavior.

5. Achieve Financial Independence: Always Keep Your Career or Business Moving Forward

In Step 3 I said that living beneath your means is the single most important step on this list, and that’s true. But you can give yourself a major assist in that effort by making sure you steadily increase your income in the future. If you can steadily increase your income – while keeping your spending level – you will reach all of your financial goals much more quickly.

You can keep your career moving forward by keeping your work skills sharp, and increasing your value to your employer. You should put yourself in the running for promotions where possible, and hold yourself open for better opportunities with other employers. If you are self-employed, it means steadily working to keep your business moving up to the next level.

Chris Hammond, financial advisor and founder of shares his career tips:

Working on advancing your career is like investing in yourself. It’s one of the best ways to get a good return on your investment, whether you are salaried or self-employed.

If you are self-employed, that just means you have a lot of “bosses” that you serve. So, periodically ask those “bosses/clients” how you can better serve them. I have done this in the past through simple surveys. I simply ask what challenges they are facing and how I can better serve them. The better you can serve people, the more value you bring to the table, the more it helps you become a higher earner.

Read more financial advisor:

6. Vow to Always Save Money – No Matter What Your Income Is

Don’t be one of those people who says “I’ll start saving money when…” The problem with telling yourself that is “when” never comes.

The better position? When is now! When is always. You should always be saving money no matter what’s happening. That’s one of the very best strategies to make sure you are always moving forward.

If you don’t have enough room in your budget to save money now, then the answer is to increase your income, lower your expenses, or both.

As John Maxwell says “You’ll never change your life until you change something you do daily. The secret of our success is found in your daily routine.”

Thus the article about The 6 Crucial Steps Needed To Achieve Financial Independence. Hopefully it will be useful for you and that’s all thanks.

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