Financially independent - Why to be one and how you will know

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By: Good Nelly
on 27th Jun,2017

Make a resolution to be financially independent this Independence Day. Check out why to try to achieve economic independence and how to know that you’ve become financially independent.
Financially independent - Why to be one and how you will know
What do you do on 4th July - our Independence Day? Do you plan a nice vacation at another city or state or just spend the day leisurely?

This year spend the day in a little different way. Set a goal to be financially independent and plan how to achieve that.

What is meant by becoming financially independent?

If it is to be answered the most simplest way, then it can be said that you can live your life as you want to without having to work for meeting your basic necessities.

Why to work towards becoming financially independent

You can achieve all these things when you achieve economic independence.

1 Work what you like to do

You can work that matters to you. You won’t have to work to earn your livelihood.

If you are continuing at your job, you can choose to take a call - leave at the time you want to, choose whether or not to work overtime, etc. If it doesn't suit you, you can leave the job any moment.

As already mentioned, you won’t have to work or earn to meet your daily necessities. That you’ll automatically get from your investments.

Then what will you do with the money you earn from your job?

Sounds lucrative - Isn’t it?

2 Live where you want to

Often we have to choose where we’ll stay based on the job we have to do. But, once you become financially independent, you can stay where you want to.

You can stay close to your family, or in the mountains or near a beach - wherever you’ve always wanted to.

3 You may like your job much more

When was the last time you were excited to go to office or do your job? Probably, you don’t have time to think about all these since you have no option.

But if you’re not dependant on your paycheck any more, you can do a job which you’re passionate about.

As a result, there will be little or no stress, and you’ll enjoy your time.

4 Your physical and mental health will improve

When stress is out of your life, your physical and mental health are bound to improve.

Think once - you get enough sleep and exercise since you won’t have reach at office at a certain time. You can leave your job and lose extra kilos as you can devote time in a gym.

Along with that, you won't have to meet deadlines or handle difficult relationship with coworkers. You can choose the people to work with.

5 Decide where and when to travel

What does first come to your mind when you think of taking a month’s vacation to travel to new places?

Is it money what you worry about or you won’t have to think about that because you know you can’t ask for a month's leave from your job, even if it’s an unpaid leave.

Once you’re not concerned about your paycheck, you can choose a month’s vacation to unwind.

Maybe you can plan that road trip which you wanted for long.

6 Select your retirement age

If you don’t feel like working any more, choose retirement and enjoy the golden period of your life.

You won’t have to work till you become 65.

Moreover, you can look forward to your retirement days when you do whatever you want.

7 Spend time with family and friends

This is probably the most lucrative thing you would want to. Since time is the most precious thing, you need to choose how and with whom you need to spend it.

Most of us work for 40-50 hours a week, and get barely some time to spend with our near and dear ones.

If you have a little one at home, probably you turn down request of your friends and extended family members to spend precious time with your children.

But if you become financially independent, you can choose when to work and when to spend time with your kids, parents and close friends.

You can also enjoy lots of “me-time” and “we-time”.

How to know that you have achieved economic independence

Here are some sure shot ways to feel “Yes, I have become financially independent”.

1 You have attained your magical FI number

First of all, calculate your Financial Independence (FI) number.

To calculate, the formula is:

Financial Independence number (FI) = Yearly how much you spend / Safely how much you can withdraw

Now, calculate when you can achieve that magical number:

Years remaining to achieve FI = (FI number - How much you’ve already saved) / Amount you’re able to save per year

You should start by saving at least 20% of your gross monthly income.

2 Your income come from various sources

You are not dependant only on your paycheck. You have a good investment portfolio with dividends and interests.

Moreover, you don’t have any outstanding loans and have already paid off your mortgage loan.

3 You have paid off your mortgage loan

You cannot be economically independent if you have to still continue making payments on your mortgage loan.

So, look at the clause of prepayment penalty in your mortgage document and repay your loan if possible.

4 How much money you have saved

To calculate your saved amount, don’t consider your retirement funds because you shouldn’t withdraw before 59 and ½ years of age due to early withdrawal penalties.

Also, don't consider the equity you have in your home.

Check out your liquid assets in your non-retirement accounts and calculate how much you still need to have to consider yourself financially independent.

If required, talk to a financial advisor and plan how you can achieve economic independence within your desired time frame.

All the best!

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