Many people dream of financial independence. Who wouldn't want to have enough money to live the way they want, with no financial worries?
It is a life goal that seems difficult to achieve and yet is within everyone's reach.
Here's what you're not taught at school: how to achieve financial independence?
What exactly is financial independence?
The meaning of financial independence for you depends to a large extent on how you want to live. A young person feels independent when he receives his first salary, long-term unemployed when he earns his living again.
A family man with his own home can wish for a life without the guesswork, and a creative mind is aimed at the freedom to turn his hobby into work and work the way he likes. But in recent years, a new trend has emerged that completely redefines the term. The goal is not to have to work until old age. For many, this means retirement at 40 or 45.
Many of these people call themselves "frugalistas" and celebrate conscious consumption and renunciation. Gargoylism comprises reducing private spending to an absolute minimum to achieve financial freedom as soon as possible.
The saved capital is continuously invested, to build up even more assets with interest. The desired monthly amount for maintaining one's standard of living varies from person to person, depending on when one feels free.
The dream of financial freedom and independence is firmly entrenched in the minds of many people. But not everyone defines the term financial freedom in the same way:
for some savers, a minimalist lifestyle is perfectly enough, while others went certain social status symbols like real estate or expensive cars to make their dream come true.
People who are struggling for financial freedom do not want a budget for their lives. Your income must allow any purchase. To achieve a luxurious standard of living with passive income from wealth, you must either already have a lot of money, earn an exceptionally high salary, or achieve an ideal rate of return.
How to become financially free? Well, know that financial independence involves several ways to achieve it. All these means combined are the keys to your success.
The difference between financial freedom and financial independence
Even though many people use the terms financial freedom and financial independence interchangeably, they mean two different things in a narrower sense:
With financial freedom, there is no fixed budget for living, and therefore you can consume without restriction. If you want to become financially independent, you limit your budget and, therefore, your consumption.
Financial independence: start by changing your attitude toward money
Besides the organizational basics and an overview of private finances, the attitude toward wealth is a relevant aspect of the path to financial freedom. Beliefs that imply a negative attitude towards money and wealth are well known. These include, for example :
- "You are not talking about money. »
- "Money changes character. »
- "Money does not buy happiness. »
A positive attitude towards money and wealth makes more sense for successful wealth accumulation. This attitude is often described as a "money mentality". Here are examples of positive connections with money :
- variety of opportunities.
Although there is not much scientific research on the topic, researchers believe that a person's attitude toward money can affect how he manages it. Psychologically, people with negative beliefs about money are more likely to spend it unchecked. People with a positive attitude to money are more successful in saving, investing, and growing their financial capital.
Therefore, after a financial analysis, those who are aiming for financial freedom can examine their attitudes towards wealth. Sometimes, a different "financial mindset" must first be established before investing successfully.
Financial independence by saving your money
Savvis your goal for financial independence? Here, it is better to save money right away. Time is an important factor on the path to freedom. Over the years, you will set aside as much money as possible, and compound interest will protect you.
As long as you work, every month of your salary will help build your wealth. To do this, you divide the income into two parts. The first is about your household's monthly expenses: rent, groceries, clothes, etc. Make a plan for the expenses you incur every month. You need to save or completely invest the rest.
Limit your expenses and think about what is needed. Simplifying your life allows you to save more money and become financially independent.
Saving for your financial security
The term frugal, also known as thrift, basically means "modesty". After the financial crisis of 2008, this trend emerged in the United States. Frugalista often excels at living frugally and spending little. For example, frugalistas are looking for inexpensive hobbies or just buy their furniture second-hand. The two main saving factors of frugalist are housing and mobility costs. Frugalistas are often content with small apartments or shared apartments and do not own a car.
However, other sources already assume frugalism if a person spends (significantly) less than he earns. According to this definition, a lesser renunciation of luxury goods is necessary to live frugally.
Although there is no clear and universal definition, frugalism is usually equated with a very frugal lifestyle and the renunciation of luxury goods. However, one may wonder whether a person can become financially free without investing and only through frugalism, even if he earns well and saves a lot.
Earn more money to be independent: create your passive income
If you have a classic salaried job, it is often difficult to increase your income from this activity. Indeed, you depend on the increases or bonuses that your employer wants to grant you.
To increase your income without constraints, you can bet on passive income.
Earn money without having to do much. Does it seem unreal to you? True, in most cases, passive income is only an additional source of income and does not replace the actual work. But it can give you certain freedoms.
The idea with passive income is that it generates itself–you don't have to do anything, or at least not much, for it. There are different ways to generate passive income: through financial investments (in securities, real estate, etc.), through the sale of products (for example, a book or photos), or through renting out your property.
Passive income is a good way to achieve financial independence without spending too much energy throughout your life. Indeed, since money is earned, it doesn't matter where you are and when–in theory, you could go on vacation all year round and generate passive income. If passive income is a secondary income, it can give you freedom in your actual work, such as reducing weekly working hours or starting your own business without depending on other people's money.
All the same, keep in mind that setting up passive income does not happen alone: you need to invest time or money (usually even both), to turn an idea into a genuine source of income. If you want to sell a product, it must be planned, produced, and tested at least once.
An example of what is perhaps the "easiest to maintain" and fastest product to produce for passive income is a photo that you make available for download on online platforms for money. You don't need capital for this, but you need time. As you will have understood, it depends on how you generate your passive income.
Here are some ideas :
- produce "timeless" products
- using affiliate marketing
- investing money in securities
- become a lender or an investor
Investing your money to achieve financial independence
Investing in your savings is an important and long-term step toward financial independence. A forward-looking investment is used primarily for financial security. Because you could theoretically lose your job because of an accident or other circumstances. The result would be the sudden loss of your income.
If you have already invested before, ideally you have a financial reserve that protects you. If you are interested in investing, you will have noticed that there are many ways to invest your money and generate returns.
They differ in a few points and, for example, have fresh chances of return or sometimes involve more or less risk for you as an investor. That's why it's even more important that you diversify your capital–you can do this with an investment opportunity that spreads the risk widely.
Real estate investment is based on the real estate asset class, which is especially valued because of its top material value and high-value stability. A fundamental distinction is made between direct and indirect real estate investments.
For example, you can invest in real estate funds or you can opt for cheaper investments with digital real estate investments: you benefit from risk diversification on a lucrative real estate portfolio and a return that develops from rental income and increasing the value of objects. Buying a property, and then selling or renting it, means a huge amount of time and sometimes a significantly lower yield.
Investors who are more willing to take risks also become active in the stock market and build passive income from stocks. You rely on individual companies and their actions. With this form of investment, you need to be aware of price fluctuations in the financial market.
A loss of your capital is possible: you should therefore only invest the money you have besides your fixed costs and which you ideally do not need for a few years. You can also invest in stocks via a savings plan or a one-time investment.
Funds and ETFs
Besides popular stocks, other financial products also want to attract attractive returns: funds and ETFs. Mutual fund managers collect money from investors and invest in several places to spread the risks.
The biggest drawback and the most return-intensive of the funds are the high fees that are due for the active management of the fund.
ETFs are exchange-traded index funds that are passively managed and track an index. Like any other stock market product, ETFs are similarly subject to price fluctuations and present a certain risk of loss. With these two forms of investment, you also have the option of investing regularly or at once.
Conclusion: you have the keys to achieving financial independence
You cannot achieve financial freedom overnight–this is a path that you need to follow step by step. Starting with increasing your monthly income, saving an amount over the fixed fee, to investing the freely available capital. Even if you only start with a small amount, you have already paved the way for long-term financial freedom.
Over the years, small investments can multiply and become a fortune that will help you become financially independent. To invest your money with a high return, you have different options that you can choose from depending on your risk tolerance and investment goal.