Want to get rich on your own terms? It takes time and effort, but it’s doable. Here are simple steps to help you build your wealth and financial freedom from scratch.
Growing your net worth can be exciting but also overwhelming from time to time. When it may look like there’s no finish line, know that big things come to those who work hard. The key to gaining control and freedom over your money is to have discipline and a plan to stick to. If you can do this, you can conquer anything!
Take a look at how you can build on your financial situation and become independently wealthy.
What Does It Mean To Be Independently Wealthy?
Most working people barely get by, meaning they live paycheck-to-paycheck and make just enough to pay bills and feed their families. Even a single person may struggle to live, some of them needing multiple jobs to pay the rent.
If that’s how it is, what does it mean to be independently wealthy? How can we reach that point?
To become independently wealthy means that you have accomplished an amount of money where you don’t have to rely on financial support from someone else or income from a job.
Each of us has a different understanding of being independently wealthy, and yet in general, it means you have reached a situation of FU money. That is, you can live how you want and do whenever you want.
How Much Do You Need to Become Independently Wealthy?
There’s no specific amount of money that could determine if you are independently wealthy or not. However, most financial experts speak of the rule of 25, where your net worth should be at least 25 times your annual expenses.
The path to total financial independence is to have enough wealth to be work optional, where you can work but don’t have to.
In contrast to what many believe, you don’t have to have a high-generating income job for it to happen. Of course, when you build high-income skills and earn a high income, that would simplify things. However, it’s not a necessity.
In simple terms, your income should be higher than what you are spending yearly. For instance, if your expenses are around $4,000 every month and your income from investments is $6,000 per month, you will be considered independently wealthy!
In order to be independently wealthy with $4,000 monthly costs, you would need 25 × $4,000 is $1,000,000.
If you could reduce your costs to $2,000 per month, it would mean that you need $500,000.
We may have different perspectives on our finances, but we all understand that earning more than our expenses can be tagged as wealthy. You don’t need a job and can live off your investments.
The Difference Between Financial Freedom and Independently Wealthy
We often get confused between financial freedom and independent wealth. Although both economic liberty and independent wealth are often used interchangeably, they have differences too.
Independently wealthy means that you have sufficient money never to work again and have money to pay for your expenses without any support.
You may also know some people who have financial freedom; they don’t depend on others to give them money or take care of their bills. They have sufficient income from a job, business, or passive income sources.
Most people would think that having financial freedom means you can retire this minute if you wanted a toy, and being independently wealthy means you are far from reaching that.
But that’s not the case.
Both are experiencing financial freedom, where they’re not depending in anyone else for money. Being independently wealthy means saving money, investing, and building your net worth for you to live your life just the way you want it.
Being independently wealthy doesn’t mean that you need to spend money on cars, live in million-dollar mansions, and walk around in Chanel.
While some people enjoy living this lifestyle, the majority don’t. They save money by living a regular life and having money habits that build wealth over the years.
Am I Already Independently Wealthy?
After all that we have discussed, you ask yourself, am I already independently wealthy? You might be, and you just haven’t realized it yet.
Here are several signs to determine if you have already reached the state of being independently wealthy:
- Your financial situation lets you live life on your terms without money being the central aspect when making a decision.
- Your investments generate enough income to support your lifestyle for as long as you’ll live.
- Quitting work isn’t an issue because you have money to fall back on.
- Your assets are at least 25x your annual income.
These are not the only indications to consider when assessing yourself to know if you are independently wealthy. These are the indicators that most people use to see if they have independent wealth.
How To Become Independently Wealthy (10 Steps)
It’s time for you to start taking a step towards your financial goal: to be independently wealthy. The first step is to know where to begin, and everything else follows.
Growing your net worth requires some effort. It typically takes years to achieve it, but it is satisfying! Here is a complete list of steps you will need to become independently wealthy.
1. Make A Priority To Pay Yourself First
When we receive our salary, many people have a tendency to go out and buy things. But, unfortunately, we often forget to pay ourselves.
Putting aside savings should be the first thing you do every time you get your salary. You can plan how much money you want to save every week or month. Financial experts suggested that a minimum of 15% of your income should go to your savings.
So every pay-out, remember to set aside 15% or more each month.
2. Make A Habit Of Saving Money
When paving your way to becoming independently wealthy, focus on continuing to save money.
If you have a problem with where to start, start with opening a savings account, making a budget list, setting your short-term financial goals, and keeping track of your cash flow and expenses.
Take control over your money, don’t spend more than what you make. Here are ways to save money each month:
- Cut down your cable bill
- Put a limit to your streaming services
- Eliminate unused services like a gym membership
- Make your meals instead of eating out
- Stick to your budget and savings plan.
3. Stay Out Of Debt
Debt is one of the reasons why people are having a difficult time becoming independently wealthy.
While debt can be a good thing, it isn’t for many people. If you have debt, it can be in the way of you achieving your goals. Especially debt with high interest rates decreases your ability to build other wealth.
Suppose you already have an existing loan such as a card debt, student loans, or car loans, pay them off as soon as you can. And if you don’t have any debt right now, better to stay far away from it.
4. Invest Your Money Wisely
Investments like appreciating assets are proven to build your net worth effectively. If you focus on making these long-term passive income sources, growing your wealth will be possible for you.
Investing may be the fastest route to increase your wealth if you invest it wisely. You can’t just invest your money in the latest hype and expect your money to grow.
5. Keep Track Of Your Assets
Do you track your assets? If so, how often do you do it? Some people do it weekly, others monthly, and some do it once every six months.
The more you keep track of your finances, the better you understand how far you are with your financial goal and what you need to do to get there faster.
If you keep forgetting to review your finances, you can set up a time each week for a money date. This will help you be aware of your habits and allows you to reflect on them.
6. Avoid Lifestyle Inflation
Lifestyle inflation, also called lifestyle creep, is something you will have to avoid when you aim to become independently wealthy. We tend to increase our lifestyle and match it to our income.
When you receive news about an increase in your income, what do you do?
There’s nothing wrong with celebrating your raise. You’ve earned it! But don’t use it to buy stuff that isn’t necessary or that you don’t enjoy.
7. Take Calculated-Risks
Sometimes you just have to take a risk to reach your goal. What kind of risks are we referring to?
That is to not make any crazy investments, especially on figurines or other collectibles. Investing is not just limited to mutual funds or cryptocurrency. Try investing in the other assets too, like rental properties.
When taking a calculated risk on investing, use these tips:
- Don’t risk more than 10% of your investment portfolio.
- If there’s a substantial opportunity that you will lose, don’t invest.
- Know first what kind of investment you’re getting into.
- Don’t dive right away into an investment just because someone talked you into it. Be hungry for knowledge. Learn more about it.
8. Build Passive Income Streams
One great way to build your net worth and sustain you for a lifetime is through passive income. There are several practices you can use to make a passive income. People choose to invest in real estate, and others invest in digital assets like blogs or websites.
Building a passive income stream, you will need either cash or time. For instance, if you want to earn passive income to pay your mortgage each month, you will need some money to invest in dividend stocks to receive money.
Blogs or websites require very little capital to get started, and in exchange, it will need a lot of your time because blogs can take years to start making a significant income.
Check out these common examples of passive income:
- Selling stock photos
- Investing in dividend stocks
- Opening an interest-paying checking account
- Writing a book
- Starting a blog
9. Have An Eagerness To Learn
We don’t stop learning after we finish our studies, and learning is one of the most significant features of becoming independently wealthy. By educating yourself, you expand your knowledge in many ways, which can go a long way.
It will feel unattainable to become independently wealthy until you learn everything you can about money. That’s when you will know that building that type of wealth can be done. And it can be done by you.
10. Make A List Of Your Goals
Making a list of goals is like a discipline for you. It keeps you going and reminds you of what you want to achieve. Setting goals is one of the tools you can use to reach them.
List down your goals, set a due date, and write down what you have to do to accomplish it in the right time frame. After doing that, it’s time to take action.
Bottom Line To Be Independently Wealthy
Becoming independently wealthy is not easy. It takes a lot of effort, knowledge, and time to make it happen. Establishing net worth is not just about changing your lifestyle but building it to fund you for the long term.
To secure a higher success rate on your goal, you will need a plan, execute it, and have a lot of patience. Your wealth won’t increase overnight, but you can decide every day to set your path for wealth.
Anyone who wants to be independently wealthy can be. You may experience setbacks, obstacles, or delays, but don’t give up. Don’t stop; keep looking forward, and keep your goal in mind.
Founder of Spark Nomad, Radical FIRE, Journalist
Expertise: Personal finance and travel content
Education: Bachelor of Economics at Radboud University, Master in Finance at Radboud University, Minor in Economics at Chapman University.
Over 200 articles, essays, and short stories published across the web.
Experience: Marjolein Dilven is a journalist and founder of Radical FIRE, a personal finance platform, and Spark Nomad, a travel platform. Marjolein has a finance and economics background with a master’s in Finance. She has quit her job to travel the world, documenting her travels on Spark Nomad to help people plan their travels. Marjolein Dilven has written for publications like MSN, Associated Press, CNBC, Town News syndicate, and more.