Financial independence is something everybody wants but are too scared to truly go after. After all, experts are always talking about having to give things up that make you happy, like your daily latte or iced coffee, to amass wealth. Is that the case though? Yes and no.
See, there are a lot of myths and half-truths surrounding what it takes to achieve financial freedom, and that’s mostly because there are a lot of variables involved in the process. However, there are a few takeaways that everyone can use to kick-off their journey to financial independence.
Income and wealth are not synonymous
Many individuals believe that a high-paying job automatically equals wealth. Sure, it’s easier to collect assets if you have a higher income. However, without saving money, making investments, and ultimately spending less than you make a high income doesn’t make much of a difference.
Consider certain celebrities who have made a fortune yet have claimed bankruptcy. In the end, their poor spending habits rapidly ate into their income. On the other hand, you have your “millionaire next door” driving a responsible car and retiring early. A higher income doesn’t equate to wealth. Smart investments and responsible spending do.
With that said, it truly is easier to amass wealth with a higher income, though it’s not impossible to do with a lower one, too. If you are currently earning a lower income, being frugal with spending and putting whatever you can aside is incredibly important. Consider getting a side gig or second job and using that a portion or all of that income to spend or invest.
Financial freedom is a marathon
Just as people fear training for and running marathons, they fear the change and time it will take to become financially independent. As discussed above, spending habits play a large role in amassing wealth, meaning you may have to start saying no to things you want more often. If you’ve played it fast and loose with your finances in the past, such an adjustment can be extremely difficult.
It’s suggested that when it comes to making financial changes and amassing wealth, it’s smartest to start small. Try putting 20 dollars into savings each time you get paid and increase that amount once you get more comfortable. Slowly whittle down the non-essential items you find yourself buying and evaluate what you truly need, and if you can get it for less.
It’s not one goal, it’s a set of small goals
Again, income does not equate to wealth. If it were that simple, financial freedom could be a reasonable single goal. However, wealth is comprised of many variables, so amassing wealth and becoming financially independent is actually achieved with a series of small goals:
- Increase your income
- Reign in spending
- Pay off debts from student loans and credit cards
- Create investment objectives
- Purchase good life insurance for your family
- Create a legacy plan for heirs
There’s more to this list, but they mostly differ based on personal goals and your definition of financial freedom. To create a customized list of goals to reach financial freedom, schedule a meeting with a financial advisor who can take all of your variables into account, and create a plan for you.
The path to financial freedom can seem scary as it’s lined with change and sacrifice, but with time and small steps, you edge closer to your destination and become more comfortable. In the end, the true key to financial freedom is honesty with yourself and your habits surrounding money. Understanding and analyzing where you’re spending money unnecessarily and where you’re spending too much makes all the difference.
Chris Jacob is a Registered Representative with Saxony Securities, Inc.. Securities offered through Saxony Securities Inc. (SSI). Member FINRA, SIPC. Non-security products and services or tax services are not offered through SSI. Cadeau is not affiliated with SSI.