While I’m not the biggest advocate of financial benchmarks, I do find value in setting objectives and making sound financial choices. With clear financial targets and a compatible budgeting approach, you’re likely to gain financial independence sooner or later.
Financial independence, however, is a relative term, fluctuating from person to person. Nonetheless, the following 6 indicators can serve as a rough guide to know whether you’re financially stable or progressing toward it.
1. DEBT-FREE LIVING
Clearing off your consumer debt is one of the key signs of gaining more financial independence. Debt often consumes a significant part of your monthly disposable income. Paying off the debt, especially the high-interest ones like credit cards, is crucial. Start by listing out every debt you have, with their interest rates and minimum monthly payments. Focus on a couple of debts and then progress to others, ultimately paying them all off. It might take time but freedom from debt will bring a wave of relief.
2. CONSIDERABLE SAVINGS
A clear sign of financial independence is ample savings that give a sense of security. Keep an emergency fund enough to cover several months of expenses – 6 months is a good target. The aim is not to live paycheck to paycheck but to establish a financial cushion to lean on during uncertain times.
3. REACHING INVESTMENT AND RETIREMENT GOALS
Consistently contributing to your retirement savings indicates your way towards financial independence. Establishing a plan for your monthly financials to cater to savings and retirement is a good starting point. Diversifying your investments into a variety of streams such as 401(k), IRA accounts, stocks, bonds, ETFs, and mutual funds can also be beneficial.
4. VARIOUS INCOME SOURCES
Earning from multiple sources is another hallmark of financial independence. This can include passive-income businesses or rental properties. These streams allow your finances to grow without needing to trade time for money.
5. CONTROLLED SPENDING
Excessive and unnecessary expenditures can hinder your financial progress. It’s not about making a ton of money, but what you do with what you make. Consider your lifestyle and financial requirements when planning your savings and cut out wasteful spending.
6. FINANCIAL PEACE OF MIND
This stems from having little to no debt, abundant savings, growing investments, and multiple income streams. Even though financial difficulties can arise unexpectedly, you’ll face less stress over money when you’re financially stable.
In conclusion, financial independence might take time and patience to achieve but provides freedom and shields against unforeseen contingencies. It’s about setting clear goals and values and taking it one step at a time. Regularly reviewing your financial status and seeking the support of your loved ones can also contribute to achieving financial independence.
