Financial independence is a goal that many young professionals strive for. As many as 72% of all millennials dream of this. There are a few key things you can do to set yourself up for success. In this blog post, we’ll outline your first steps to financial independence.
Create a Budget and Live by It
The first step to achieving financial independence is creating a budget. You need to know where your money is going in order to make informed decisions about your spending. Track all of your income and expenses for one month to get an idea of where your money goes. Then, create a budget based on your needs and wants. Try not to spend above your means — it only makes sense to go into debt at this point for smart financial decisions like starting a business or investing, but not for luxuries. Make sure to include savings in your budget so that you can start building your nest egg.
Save, Save, Save
Once you have a budget in place, it’s time to start saving! Begin by setting aside money each month into a savings account. If you can, try to put away 10-15% of your income, or much more. Automate your savings so that the money is transferred from your checking account to your savings account each month. This will help you make headway on your financial goals without having to think about it. However, try to leave a bit of spending money for yourself for things you want, like the occasional dinner, movie, or online purchase. Putting all your money into savings will make you burn out faster and might even create feelings of regret later in life — remember what they say about all work and no play!
Avoid Vices
Vices in this context refer to anything that requires you to spend money without adding much value to you. What differentiates a vice from the occasional treat-yourself expense is that vices are repeated and even addictive. Examples of these are gambling, in-game purchases in video games, or even a tendency to buy things you don’t need just to have them. Even traditional vices like smoking and drinking should be avoided, too — these are bad for your pocket and your health. The cost of a pack of cigarettes adds up to a lot in a year, and ten years down the line, you’ll find that treatment for emphysema is pretty expensive, too.
Invest in Your Future
Investing is another important part of achieving financial independence. When you invest, you’re essentially putting your money into something that has the potential to grow over time. This can be stocks, bonds, real estate, or even mutual funds. Investing allows you to grow your wealth while taking less risk than gambling or stock picking.
Stocks
Stocks are an investment in a company where you become a part owner of that company. When the company does well, the stock prices go up and you make money. When the company does poorly, the stock prices go down and you lose money.
Bonds
A bond is a type of investment where you loan money to a company or government in exchange for interest payments over a set period of time. Bonds are considered relatively low-risk investments, as the company or government has a good track record of paying back its debts. When you purchase a bond, you’re essentially lending your money to that entity for a set period of time. In return, you receive periodic interest payments over the life of the bond. The face value of the bond is also repaid at the end of the term.
Real Estate
Real estate refers to houses and places where people live, as well as other kinds of structures like office buildings or simple plots of land. Lots of factors dictate the prices of real estate properties, but as time goes on and the community around a property develops, prices usually increase. You can also make a lot of money by buying a house and then selling it for higher.
Mutual Funds
Mutual funds are a type of investment where you pool your money with other people to invest in a variety of things, like stocks, bonds, and real estate. This way, you don’t have to go out and invest in each individual thing yourself. Instead, you let someone else do all the work for you and just collect your share of the profits (or losses).
Mutual funds can be a great way to get started investing, as they’re relatively low-risk and offer a variety of investment options. When you invest in a mutual fund, you’re essentially buying shares in that fund. As the fund performs well, the value of your shares goes up. Conversely, as the fund performs poorly, the value of your shares goes down.
Regardless of which one you like the sound of, it’s important that you do more research before investing. Financial literacy is quite hard with all the jargon, but with advice from a financial coach, you’ll know enough about it soon enough to start investing. Just make sure not to put all of your eggs in one basket!
Final Thoughts
Achieving financial independence is a goal that many young professionals strive for. By following these simple steps, you can begin the journey to financial freedom. Create a budget and stick to it, save as much money as you can each month, and invest in assets that have the potential to grow over time. These steps will put you on the path towards achieving financial independence.
