Did you know that you don’t have to be rich in order to be financially independent? All you need is to have enough in cash flows or assets from sources other than a day job in order to cover your costs. It might be a journey to get there, but it’s totally worth it.
If this is something you’re considering, the very first thing you’ll want to do is come up with a solid plan—and you’ll need to stick to it. This can mean years and potentially even decades, but you should consider the time spent as building blocks to enable you to reach financial independence.
Here are six tips to keep in mind:
Lower Your Cost of Living
You’ll ever be able to save up money or achieve financial independence if you can’t keep your cost of living down. The less money you spend, the more money you’ll have on hand to cover any unexpected costs or surprises that life might throw your way, and those surprises can quickly unravel all of your hard work if you aren’t careful.
Prepare for the Unexpected
Speaking of surprises, you never know what you might face in life. For example, no one could have imagined just six months ago that we would be experiencing a coronavirus pandemic. To combat this, you need to build in a buffer to your plans so that you can handle bad things as they happen in life.
Be Careful with the Stock Market
While the stock market can be an incredible way to grow wealth over time, stocks can also be very dangerous assets to own when it comes to short-term needs. All it takes is one market crash to erode stock prices, which could force you to sell more shares than you can afford in order to cover any costs you might face.
However, stocks CAN be beneficial to help with longer-term goals. Buying a broad stock market exchange-traded fund can go a long way if you’re willing to play the game long enough.
Stocks can be fantastic for long-run returns, but keep in mind that a one-time investment isn’t likely to get you where you need to be. Your goal should be investing regularly, ideally with every paycheck if possible – and you can do this by signing up for automatic paycheck deductions into your 401(k) or other employer-sponsored retirement plan.
Reinvest Your Dividends
If you believe stocks will return 8% annually, 2% from dividends and 6% from growth, you may be tempted to spend those dividends because they represent just two percent of your invested amount. However, a smarter choice would be to reinvest those dividends so that your money can grow even faster.