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
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.
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.
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.
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.
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.
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.
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.
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:
You should start by saving at least 20% of your gross monthly income.
2 Your income come from various sources
Moreover, you don’t have any outstanding loans and have already paid off your mortgage loan.
3 You have paid off 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.
If required, talk to a financial advisor and plan how you can achieve economic independence within your desired time frame.
All the best!