Steps To Achieve Financial Independence: Your Guide To Success
Financial independence is a concept that includes the ability to manage and save one’s income, as well as the ability to reduce debts and make different investments. This important fact that guides our lives also brings with it the desire to achieve financial goals and achieve financial independence.
In other words, we can briefly answer the question of what financial independence means as “a process in which a person is financially independent, takes responsibility for income and expenses only, and can act comfortably financially, without being dependent on anyone else.”
Gaining financial independence is a process that requires discipline, patience, and time. This process requires financial planning and determination within the framework of discipline. First of all, acquiring the habit of saving money and making saving a part of your life will be important and necessary first steps. Making investments that will provide you with passive income will be an ideal method to achieve a more flexible and freer financial situation.
What Is Financial Independence And Why Is It Important?
Saving while working will contribute greatly to gaining your financial independence. If you do not waste what you earn and save, you can achieve the freedom and comfort you long for much faster than you expected. Your main principle in saving should be this: after paying all your expenses and expenses, you should not save the remaining money, but rather set aside a certain portion of your income (at least 30%) as savings from the very beginning and try to get by with the remaining amount.
For example, if you have a monthly income of around $4,000, you will buy foreign currency with $1,500 of it every month and complete the month with the remaining $2,500. In other words, you will consider yourself as someone with a monthly income of $2,500, not someone with a salary of $4,000, and you will live like that. When the money you have is limited, you will start to refrain from making a lot of unnecessary expenses that you do not need.
When you start limiting your consumption frenzy in this way, you will be surprised to see that while a salary of $4000 used to be barely enough for you, and even barely making ends meet, after a while you cannot even spend $2500. Because the money you have is limited, when you buy or spend something, you will start to think not twice but 4-5 times, “Do I need this?”.
Years flow like water. Then you realize that you have saved enough that you will not have to suffer until the age of 60 to gain your freedom. After your 40s, you do not have to spend all your time and energy on anyone, any party or workplace. You will spend your time only with what you want, with your loved ones, and with the things you love. Living happily does not mean living in luxury, owning a lot of property, and consuming.
What Are The Key Steps To Achieving Financial Independence?
Building financial independence is an action that requires time. In this context, the right strategies and consistent efforts applied on-site are indispensable tools for you to achieve your financial independence. Some tips that can guide you on the path to financial independence:
Create a budget plan to determine your current financial situation by regularly tracking your income and expenses. The result you get when you subtract your total expenses from your total income will show you your situation. If your situation is negative, you will need to review your expenses accordingly. Take the risk of giving up your non-essential expenses by controlling your expenses in line with your expenses, and develop the habit of saving.
If you have debt, try to pay it off as soon as possible because debts are one of the biggest obstacles to financial independence. Prioritizing your debts with high interest rates will be a strategic approach. Make a budget plan at the beginning of the month and try to follow the budget frequently during the month. This action will help you constantly monitor your financial situation and thus move forward with more confident and conscious steps.
It is possible to encounter unexpected expenses at any time. Therefore, create a fund that you can use in emergencies. It is recommended that this fund you will allocate should generally be in an amount that will meet your basic/living needs for 3-6 months.
How To Set Financial Goals For Independence?
Financial independence; I think it is not necessary to work to continue your life at your standard of living. Of course, you can continue to work in this system. But you work not because you have to, but because you want and love to work. Your standard of living is not dependent on your work.
For this, there must be a source of income other than the salary you receive in return for your work. This can only be done through savings and investments. Of course, if you do not inherit a large amount. But investment is essential in any case.
Calculating financial independence is a process that varies greatly from person to person because each individual’s financial goals, lifestyles, and plans are different. For this reason, the money required for financial independence has a variable momentum within this framework. While some require a higher amount, others may need a minimal budget. First of all, determining your goals, expectations, and plans will be a necessary step in calculating your financial independence.
How Can Budgeting Help You Achieve Financial Independence?
Try to increase your positive balance in line with realistic, affordable, achievable, and reasonable goals. In this way, you will be able to allocate money for investment. Instead of direcDollary targeting financial independence, determine the steps required to reach that point as a goal. In this way, your process will progress more healthily and efficiently.
Determine your financial independence quota, research various investment options that are suitable for your risk tolerance and financial goals to reach that goal, and start making long-term investments. Long-term investments have a high potential to provide a regular flow of income.
To progress more consciously and fully motivated on this subject, you can benefit from the books that should be read for independence. Learning more about the subject will provide you with better financial situation analysis skills on the path to your financial independence process.
What Role Does Saving Play In Reaching Financial Independence?
Financial independence is not having a lot of money or being rich. It is being wealthy, and providing a constanDollary increasing income. To achieve this, it is necessary to start making smart investments at an early age (if possible). Of course, to make investments, you need to have a gradually increasing income. For this reason, our youth needs to turn a deaf ear to environmental factors, focus on their education, and have a profession despite all the negativities experienced.
Then, it is necessary to make a budget and allocate money for investment every month. In our country, investments are not made in the way most people know (gold, dollars, deposits, real estate, etc.). Investments are made with stocks, investment funds, or worse, with land in a long-term manner.
Due to the current position and structure of our country, many crises are experienced. These crises also present us with many opportunities. For example; during the period when we were locked in our homes, airline companies could not fly and their shares crashed on the stock exchange.
However, those who read their balance sheets did their fundamental analysis or knew that the company would not go bankrupt, and increased the shares they bought for 7-8 Dollars to 140 dollars. You cannot earn this much money from any investment vehicle. However, unfortunately, investing in the stock market is also done wrong in our country. For example, especially young investors who came to our stock market in the last year, left the stock market as quickly as they came.
Because they dreamed of making money in a short time by buying and selling with the crypto logic, maybe getting rich, and losing money just as quickly. However, investing in the stock market is not like that. Long-term investments are made in companies with solid foundations and good bosses, by examining their balance sheets every 3 months. Your shares pay dividends over time, and their number increases by being divided with or without a fee. Years later, with the effect of compound returns, it reaches points you cannot even comprehend.
How To Increase Income For Financial Independence?
One way to achieve financial independence is to increase your income by earning passive income equal to your salary. In this way, you can replace the money you spend without losing your wealth with dividends from stocks, interest from Eurobonds, and rent from houses.
This was the method I used when I first started. We said it was easy to implement. Let me give you an example. For example, consider an employee who earns a salary of 6,000 Dollars. In total, he earns a salary of 72,000 Dollars per year. He works for 200 Dollars per day.
If this investor earns a passive income of 72,000 Dollars per year (dividends, interest, rent), he can buy his slavery and become financially free. Here, it is very important not to forget to take the necessary precautions for this income to increase at the rate of inflation after it is determined. Although the interest income from Eurobonds does not change relatively much depending on the changes in the dollar, dividends can increase and decrease.
What Are The Best Investment Strategies For Financial Independence?
To achieve financial independence, it is necessary to evaluate long-term investment options. In doing so, a diversified portfolio should be created. I recommend low-cost index funds in addition to other savings programs. Creating an emergency fund: The number of months is up to you, but a reasonable 6 months is to keep money in deposits, foreign currency, or gold. The aim is to keep money that does not lose its value and can be easily converted into cash. This money can protect you against short-term income losses.
It can provide a breather until the income lost in a possible road accident during retirement is replaced. Retiring with a higher passive income amount: A monthly passive income of 6,000 Dollars may be enough for you. However, you can create a “safety margin” for yourself by setting your target between 8,000-10,000 Dollars and aiming for more passive income. In this way, small income losses will not disrupt your financial independence plans. In addition, since you will not reinvest dividends and interest income but spend them, it would be better to determine the required amount a little more than your salary.
Finally, when you put your dividends into this equation, you should pay attention to the fact that the company pays its dividends regularly and in increasing amounts. In other words, if the company pays 1 Dollar gross dividend one year and 0.20 Dollar gross dividend the next year, this will also disrupt your plans and you cannot trust this volatile rate and embark on the journey of financial independence.
For example, you have invested in a company that pays a 15% dividend, but the company is cyclical. If it reduces its dividend by 50% after 3 years, then you need to close the gap by selling shares. If the dividend of a cyclical company has decreased, its profit may have decreased as well. The market may not be sympathetic to a company with decreasing profits. This may also reduce your retirement income by 50%.
How To Manage Debt While Aiming For Financial Independence?
Successful debt management is critical to achieving financial independence. First of all, for successful debt management, you must pay off high-interest debts. After that, you should minimize your current unnecessary payments and expenses by making a budget.
It is recommended that you spend a certain portion of your monthly income on long-term investment options even while you have debt. The most common types of debt today are usually credit cards and loans offered by banks. Individuals in this type of debt should prioritize paying off their urgent debts with high interest rates.
How Can Passive Income Streams Lead To Financial Independence?
Thanks to passive income methods, you become independent from your job and receive a constant cash flow. This will be a great contribution to financial independence. So what are passive income methods?
- Rental income
- Dividend payments
- Digital content income
These are the most common passive income methods today. Passive income is money working for you. For the average citizen, it is rental income. For those who have some money, it is interest income. If you are touching the principal, do not count it as passive income. Passive income should increase your standard of living.
If you have a plot of land and think it will be very valuable in 10 years, this is not passive income, it is an investment. Because you will not receive cash, what will you live on? Here we see the power of cash. Passive income pays your debts and allows you to get a loan for the next house/shop you buy. When you do not invest, it is in your pocket.
What Are The Challenges In Achieving Financial Independence And How To Overcome Them?
Financial independence is not about sitting all day. These savings will help you get out of the mentality of working for money in later years and gain the freedom to do what you love. Especially with the reflection of inflationary effects on basic needs such as food and shelter, the effort to protect the standards that are accustomed to is causing all segments of society, from 7 to 70, to face the question of “How can I increase my income?”.
Although this situation has caused a segment to accelerate their search for additional income by investing in risky assets such as cryptocurrencies, the number of people in society, especially young people, who aim for the future and turn to long-term investments in the stock market has also increased significantly.
According to the official data, the number of stock market investors, which was 1 million 154 thousand 349 in 2019, increased rapidly during the pandemic and exceeded 2 million 380 thousand as of March 2022. It is noteworthy that individuals between the ages of 15-30 made the greatest contribution to the increase in the number of investors.
The number of 15-30 investors in the stock market, which was around 65 thousand before the pandemic, reached 330 thousand by the end of last month. The total value of the portfolios of this young audience increased from 1 billion 398 million dollars to 11 billion 719 million dollars in the same period.
See you in the next post,
Anil UZUN