3 Aug 2020
How to Achieve True Financial Independence
Estimated read time: 7 minutes, 27 seconds
Everyone dreams of achieving true independence—a state of vitality in which you no longer depend on anyone or anything, where you have more than you need to meet all your needs, and have a comfortable and happy quality of life, free of stress and fear. Though this might sound ambitious, achieving it is possible if you know which path to take to get you there. Here we will analyze some of the keys to guiding your actions towards reaching this objective so that you can achieve, in the prime of your life, this independence granted by true freedom, and that contributes to bringing you peace of mind.
Most people have heard the theory that in order to be truly independent you need to save, moderate spending, avoid debt, purchase the proper insurance plans, take care of your physical health and increase your mental strength. Yet, despite understanding it clearly, there are people who fail to reach this goal.
Though it’s true that doing so requires effort and discipline, the reward is worth it, because it is a promise of tranquility and confidence, which consequently brings well-being and happiness.
Knowing where to start is key. The first thing to do is to define what we mean when we refer to being completely independent in life.
What is true independence?
There is only one way answer to this question: it means something different for everyone. Each person will have their own requirements for independence, their own path. However, all paths will have steps in common, including having your own source of guaranteed income, being debt-free, and having enough savings to take care of you and your family’s health needs, as well as way to guarantee their quality of life regardless of the circumstances.
From there, the paths are infinite. For one person independence might be minimalist and philosophical, while for others it might be a path of hedonism and pleasure. Regardless of how you define it, in all cases the foundations for this and the key to achieving it—having a plan and being dedicated in executing it—are the same.
This is why the sooner you take the necessary measures, the sooner you will arrive to this place where money, professional obligations and insecurity will no longer affect your mood. Finally, you will obtain this long-sought freedom, where the decisions of governments, companies, the market, or other people will no longer represent any kind of threat to you.
These measures are related to our three basic needs: physical health, mental health and financial health. As such, they are interrelated elements. Having economic well-being means nothing if you don’t have the health to enjoy it. And likewise, if you don’t have mental health, none of the rest will mean anything.
Improving physical health to have more freedom
Everything starts with health. For your present and future, and even that of others—your spouses, children, parents—taking care of your health is the first brick in building independence and includes several aspects.
- Physical activity is the basis for a healthy life. You can keep your body as youthful as possible through regular, well-organized and healthy exercise. Sometimes just short in-home exercise routines are enough to have a toned and strong body.
- Eat and sleep well. You can’t be healthy without eating properly. You must shy away from excesses, seek out more balanced and healthy foods, introduce fish into your diet, and especially, fruits and vegetables. The recommendation of eating five servings of fruit and vegetables daily can work wonders. Sleeping is also key to good health. You should try to get at least seven hours, set a regular schedule, and avoid caffeine and other foods that can disrupt sleep patterns.
- Visit your doctor regularly. As the years pass, regular visits to the doctor are vital in guaranteeing good health. Regular checkups can detect many emerging problems and stop them before they become serious. Going to all doctor’s appointments and following their instructions to the letter is indispensable in ensuring that you will have the health to achieve independence.
Having mental strenght prepares you for independence
Not everyone is mentally prepared to walk the path towards this freedom. For many people it is difficult because they lack the psychological strength to handle it. This is many times due to the fact that mental strength is gained through the exercise of keeping calm in complex situations and making decisions with a cool head, sufficient information, and perspective.
Experts have identified four pillars for achieving the mental fortitude that contributes to allowing you to reach a state of independence. They are:
- This refers to the way an individual sees their goals, their determination to reach them and their effort in pursuing them.
- In this case, self-control, or a person’s ability to stay calm in stressful and highly demanding situations. For example, not being overwhelmed by panic when the market drops.
- Concentrate your efforts on your priorities and not spreading yourself too thin with secondary or unimportant issues.
- Be prepared to fail. Sooner or later you will make mistakes. This can sometimes lead to failure, which is why you must be mentally prepared to handle the setback, learn from mistakes and get up again.
These four values will allow you to build a more powerful and effective mind, trained to handle adversity, stress and the most demanding situations. It will make you more honest, able to accept others success and think independently.
Build financial strength to be truly free
With mental and physical health, you have already achieved a good part of this goal. But it won’t mean much if you don’t have the solid financial basis offered by the most complicated and elusive of freedoms—economic freedom.
There is a lot of advice out there on how to improve your finances. Some focus on savings, others on investing, diversifying income, or purchasing insurance products. Experts have summarized all these strategies into six main ones:
- Diversify income streams. You will never achieve financial independence if you only have one source of income. Everything can be lost if this is put at risk or is cut off. You need to have more than one source. This could be parallel businesses to your main job, diversification in you main business, or by participating as an investor in projects directed by others.
- Avoid debt. A person with debt will have more obstacles to overcome in achieving independence. We recommend eliminating all debt and not taking on more. However, we must not confuse debt with taking out a loan to invest the money and gain benefits.
- Spending less than what you earn and investing the rest. This is one of the keys to ensuring that this part of the plan works. You need to make budgets for income and expenses in a way that there is always an excess. With this money you can create an investment strategy.
- Always save, regardless of how much you earn. In addition to investing, you also need to start creating a financial cushion if things get complicated. Money that’s not working for you creates less wealth, making it important to choose your savings instruments wisely, but it’s important to have this ability to create immediate liquidity in the event of an emergency.
- Protect your capital from taxes. A person who is willing to fight to achieve their financial independence doesn’t want taxes to eat up the majority of their efforts. You should look for investment mechanisms and savings instruments with low tax rates, allowing you to protect your money. One of the easiest ways to do this is a retirement plan, which can be offered through your employer or opened independently.
- Purchasing the right insurance. A person who wants to protect their loved ones and become financially stable must not let their guard down in regard to insurance. Whether they are health, accident or life plans, it’s very important to purchase them in a way that offers optimal coverage at all times. For example, when your children are young you can combine a term life insurance plan with a good family health plan. Later on, you can move to a permanent life plan and healthcare plan for old age. The idea is to find the right combination of policies that allows you to get the most out of each dollar you invest in insurance.
A person can set out to build their own true independence step by step following these recommendations, tactics and strategies. The moment will come where you have achieved financial independence, and if you have taken proper care of your physical and mental health, you will have many years ahead of you to enjoy this singular feeling of not depending on anyone and being completely free.
With time and health in front of you, it will also be important to keep your body and mind active. Hobbies, exercise, friends, family, travel. All of these contribute to creating the foundation for a fulfilling and happy life—the ultimate goal of true independence.
Sources: Harvard Medical School, “5 steps to long-lasting independent living”, U.S.News: “7 Habits to Help You Reach Financial Independence”, Jeff Rose, Forbes: “The 15 Crucial Steps Needed To Achieve Financial Independence”, The Balance: “How to Become Financially Independent”, Palig.com: 10 Mindset Shifts to Improve Your Financial Well-Being