Financial independence is when you have the financial security to do what you want in your life without worrying if you have the money for it. If you're looking for more financial security, working toward financial independence has the potential to improve your quality of life. You may experience less stress and anxiety and improve your relationship with money. Achieving financial independence takes a plan and usually includes decreasing expenses and saving a priority. While cutting costs and saving money can seem like it will negatively impact your quality of life, it doesn't have to, if you are intentional about it.
Here are ways to achieve financial independence without sacrificing your quality of life.
Ways to Cut Costs and Save Money
Cutting costs in your everyday life is a great way to start saving money to put toward your financial goals. As controlling your spending becomes a habit, you can work towards creating a budget and paying off debt.
- Track your spending: There are small daily expenses that usually go unnoticed. For example, you may notice you are spending a lot of money on daily coffee or lunch. These are great places to cut your costs. A daily coffee can cost anywhere from $2 to $10. If you get coffee every workday, you will annually spend anywhere from $520 to $2,600, depending on your order.
- Make smart swaps: If you tend to buy coffee out, consider investing in a good coffee or espresso machine. You'll spend between $500-1,500 as a one-time purchase, rather than spending money each day. You can even buy quality coffee beans, a frother and your favorite syrups to make your favorite coffee drinks at home.
- Create a budget: After you examine your expenses, you can use a popular budgeting technique like the 50/30/20 rule, which involves taking your net income and splitting it up into needs (50%), wants (30%) and savings (20%).
- Pay off high-interest debt: Credit card debt can quickly accumulate high interest. If you're in debt, consider using the debt snowball or debt avalanche method to focus on paying off one debt at a time. Read our Top 5 Tips to Overcoming Credit Card Debt.
After you take these steps to start your financial independence journey, you can also start thinking about increasing your savings.
Ways to Increase Your Savings
Saving money is critical to achieving financial independence. After all, an emergency fund provides a cushion to help you weather unexpected expenses and emergencies, and it enables you to build wealth over time. Without savings, you may be forced to rely on high-interest debt to cover expenses, making it difficult to achieve financial goals such as buying a home or retiring comfortably.
To start saving, consider the following steps:
- Make a savings plan: To save money effectively, create a detailed plan of how much you want to save and can realistically save based on your budget. Break down your savings goals into manageable monthly goals to keep you on track.
- Use a budget: A budget can be a helpful tool to start your savings journey. Start small by saving a small amount each week, even starting from your coffee budget, and gradually increase the amount each month. This approach will help you make saving a habit and not feel like a sacrifice.
- Open a savings account: In the current high interest rate environment, many banks and online institutions are offering high interest rates for savers. Once you have a good amount saved up, you can also think about placing your money in Alternatives to Savings Accounts that offer even better interest rates, such as CDs.
- Live frugally: As you become more conscious of your spending habits, find ways to live frugally and save money simultaneously. Making small changes, such as bringing lunch to work or using public transportation, can help reduce expenses without significantly impacting your lifestyle.
By saving regularly, you can also take advantage of investment opportunities and compound interest, which can help your money grow faster and provide greater financial stability in the long term.
Consider the Value of Experiences Over Material Possessions
Many people who pursue financial independence have a mindset change when it comes to material possessions. A budget can easily be ruined when you are always wanting something, whether it's a new TV or a fancy car. In addition, comparing yourself to others on social media makes it easy to desire things you never thought you needed.
Making a switch to experiences over things can help you reach financial independence while also developing a better relationship with material possessions. Consider that:
- Experiences create lasting memories: Instead of splurging $1,000 on the newest phone that may lose its appeal quickly, you can spend that money on an experience like a daytrip to a nearby national park with loved ones.
- Shared experiences build stronger relationships: Instead of buying material possessions for loved ones, consider gifting them with an experience like a surprise date night at home. (Read our Guide to Affordable Date Night Ideas).
- Experiences can be affordable: Many enjoyable experiences are free or low-cost. For example, instead of going to a fancy restaurant for a $100 dinner, you could plan a picnic at the beach or a hike in a nearby park for little or no cost.
Start thinking about how you can incorporate more experiences into your life. You may find that you are happier or more content when you seek experiences over things.
Financial independence is a great goal to aspire towards. It can help you improve your overall quality of life, but it does take intentional actions to reach financial independence. To reach financial independence, focus on cutting costs and increasing your savings. Doing these two things doesn't have to lower your quality of life if you make intentional swaps that allow you to enjoy the same things for a fraction of the cost.