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Financial Independence: What It Means and How to Get There

Tiffany Verbeck
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We’ve all dreamed of quitting our day job and going #vanlife. There’s always one thing in the way: financial independence.

It may sound crazy, but it’s achievable.This guide will help you carve out your path and get you started on your way.

What is financial independence?

Financial independence means having enough money coming in to cover your expenses without having to work or depend on others. 

It’s a combination of how much money you’ve made and managing it smartly. 

It’s how a celebrity living a fast life can burn up millions, but a thrifty construction worker can retire with millions.

For many people, it’s within reach, but we need a little extra guidance.

Figure out how much you’ll need

It’s up to you to figure out how much you need to live the life you want.

Tally up your must-have lifestyle costs and figure out the yearly cost.

Next, calculate your net worth. Net worth is how much you own in assets (or how many stocks, investments, properties, etc.) minus how much debt you have. 

You can calculate your net worth by filling in an online net worth calculator

Then, divide your net worth by your yearly costs of living.

For most of us, reaching financial independence will be about building wealth over a lifetime and living frugally, then living off of savings.

4 approaches to financial independence

There are many ways to become financially independent. 

Each approach has different risks, costs, and lifestyles they can buy. These are the most common.

Save and budget your money

Biggest risk:
You’ll have to make sacrifices that your friends may not be making. This means saving instead of vacationing, cooking at home, working towards a smaller home than you dreamed about.

Starting resources:
Use budgeting software or apps to organize your finances.

Lifestyle this approach can afford:
Budget or moderate lifestyle.

Get a side hustle

Biggest risk

Starting a side hustle doesn’t have to require a lot of money, but it takes up time. The biggest risk is your side hustle doesn’t make money after you develop it.

Starting resources:
The main resource is time and energy. You may need money to start a craft or invest in training. The benefit of working extra is that you have less time to spend your money.

Lifestyle this approach can afford:
Budget, moderate, or extravagant lifestyle, depending on how much money your side hustle can make. 

Add passive sources of income

Biggest risk

Your additional income streams don’t pan out or make money. Because your initial investment can be higher for a passive income stream, it’s a bigger risk than some of the other options.

Starting resources

You’ll need cash to invest in things like rental property or a new business. Remember: no investment is safe. Any invested money you can stand to lose.

Lifestyle this approach can afford

Moderate or extravagant lifestyle.

Invest your money

Biggest risk:
Investing might be the riskiest of the bunch, but it also offers the greatest opportunity to increase your earnings—by a lot. Remember any money invested you can stand to lose. Even well-researched investments can lose value quickly.

Starting resources:
With investing you need money to start.

Lifestyle this approach can afford:
Moderate or extravagant lifestyle.

You can make financial independence happen

It’s cliché but true—you never want all your eggs in one basket. 

If you’re serious about becoming financially independent, mix and match these methods to do what works for you.

A healthy budget and savings plan can work well alongside an investment portfolio. Add a passive income stream and a side gig to the mix, and you’ll be well on your way.

Opinions, advice, services, or other information or content expressed or contributed here by customers, users, or others, are those of the respective author(s) or contributor(s) and do not necessarily state or reflect those of The Bancorp Bank (“Bank”). Bank is not responsible for the accuracy of any content provided by author(s) or contributor(s).

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