Author: Stella Kalmeta
Date of Publication: 24/03/2023
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Financial Independence, Retire Early (FIRE) is an initiative devoted to a program of savings and investment. In particular, the goal is to enable people to retire far earlier than typical budgets and retirement plans would allow. To put it more simply, being financially independent means that you could retire early. So, you could continue with your current lifestyle without having to work ever again.
Although the fundamentals of financial independence are straightforward, achieving them requires commitment and discipline. So, the following are some of the key principles that can help individuals achieve financial independence:
Principles to achieve Financial Independence
1. Set life goals
The concept of financial independence isn’t the same for every individual. One of the first steps is to set your life goals. Being specific when setting your goals can increase the likelihood of successfully achieving them. Top things you should consider are:
the requirements of your lifestyle
determine the necessary financial resources
and establish a realistic timeline for achieving them.
2. Don't spend more than you have
The biggest financial mistake most people make is overspending. Living within your means is the only way to achieve financial freedom. So, the first step is to know exactly the amount of money you have and what you spend it on.
3. Plan your expenses and income
Most people are unaware of how much they actually spend because they don't keep track of the "smaller" expenses. When those expenses accumulate, they result in a bigger sum. For example, a personal budget is a tool to control your money in order to spend it in the best way.
Thus, by keeping a detailed list of all expenses, you have an overview of your expenses. This way you can try to reduce the unnecessary ones.
4. Create an emergency fund
Furthermore, you should be creating a fund for unexpected and possible events, the so-called savings for rainy days. Those events could be: unemployment, salary reduction, illness, unexpected home or car repairs, etc.
Therefore, you had better have enough money in that fund. Thsi way you could cover all your regular expenses for a period of 6 months. This might include loan repayments too.
5. Save for old age while you're young
When you are in your 20s, retirement seems a far off. In fact, it is, but that doesn’t mean that you shouldn’t start saving for it. The sooner you start saving for retirement, the better it will be for you in the long run.
Anyways there are many ways to save for retirement, and you should choose the one that suits you best. So why not?
6. Invest
As soon as you've built up your emergency fund, you should start investing. But before you begin, you should consider what your objectives, time horizon and risk tolerance are. This will help you in creating an investment strategy and choosing suitable investments.
However, if you don't have knowledge or interest in investing on your own, you can hire a financial advisor. This person can help you get started. Moreover, he can also help you make adjustments to your financial plan as your goals and market conditions change.
7. Get insured
Insurance is another way of managing risks. It’s good to have insurance for everything that can result in huge expenses. Specifically, the most important are health, home and car insurance.
Therefore, if you want to achieve financial independence, it’s extremely important to be insured. This is because otherwise you could lose a large part of your savings in just one moment.
In conclusion, the definition of financial independence differs from one person to another. So far, we got to know some general guidelines that we should follow if we want to be financially independent. It may be a lot of work. However, once you get there, you'll be glad you followed these steps and can passively maintain your lifestyle.
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