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It’s easier than most people think to become independently wealthy. You don’t need to be a celebrity or born into a ‘rich family,’ anyone can achieve it with the right steps.
What does it mean to have independent wealth, and how do you achieve it? Check out the guide below.
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What Does It Mean to Be Independently Wealthy?
Being independently wealthy is just as it sounds - you have enough money to do what you want when you want. This includes having enough money to cover your bills and live the lifestyle you’re used to without support from anyone, including an employer.
There isn't a specific number you must reach to be independently wealthy - it depends on your lifestyle, habits, and financial goals. What is independently wealthy for one person may not be the same for another.
It comes down to when you get to the point that you don’t have to work and you won’t have to worry about money at all because you have enough to cover everything.
How Does Being Independently Wealthy Differ From Financial Independence?
Independently wealthy and financial independence sound the same, but they have many differences.
When you’re financially independent, you don’t rely on anyone else for financial support, which is somewhat like independent wealth. From there, the definitions of financial independence have several variations.
Some people believe financial independence occurs when you can retire early and live off your passive income or money earned from a job you love, as defined by Vicki Robin, not a job you have to have to cover your bills. If you have enough money to cover your expenses and can retire from the 9 to 5 grind, you’re financially independent.
Some forward thinkers also consider financial independence occurring when you are free from the support of anyone but yourself. Even if you have a job, you’re supporting yourself and have financial independence.
It depends on how you want to look at the term, but most agree that independently wealthy means you can afford anything you want without relying on any type of income - passive or active.
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Examples of Being Independently Wealthy
Like the definition of independently wealthy, there’s no ‘status’ you must reach to achieve this milestone, but here are some examples of how independently wealthy people live:
- You own multiple cars, such as sports cars or ‘fun’ vehicles like boats, ATVs, or other recreational vehicles
- You own private jets or yachts
- Your home is considered a ‘mansion’ for the area
- Wear only the most expensive designer clothes
But, it may surprise you to learn that many independently wealthy people live ‘regular’ lives like you and me. It is part of the reason they are as wealthy as they are because they don’t waste their money on ‘things’ but instead focus on their future.
You may find that people with independent wealth still drive ‘regular’ cars, wear ‘normal’ clothes, and live in an average home. They may have some splurges that others don’t, but at first glance, you’d never know their level of wealth because they live like the rest of us.
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10 Tips to Become Independently Wealthy
So how do you reach the level of independent wealth that others reach? Here are ten ways.
1. Create a Budget
You can’t create independent wealth without a budget. A budget is like a map for your money. It tells you where your money must go, including where you should save and invest it.
Without a plan, you won’t reach your goals because it’s hard to track your money when you don’t know where it should go. A budget keeps you on track. It lets you know when you’ve overspent or missed your goal to save or invest.
A budget isn’t restricting - it’s empowering. It helps you achieve your financial goals no matter how far out of reach they may seem right now.
2. Save an Emergency Fund
An emergency fund helps you should disaster strike. If you lose your job, fall ill, or can’t work for any reason, an emergency fund covers your expenses during those times.
More importantly, an emergency fund ensures you don’t have to dig into your retirement savings or other accounts earmarked for other goals if the worst happens. An emergency fund ensures you don’t need to pull out the credit cards, putting yourself into debt too.
Think of it as protecting your future. Your emergency fund should have at least 3 to 6 months of expenses in it.
3. Live Below Your Means
Everyone needs to spend less than they make - it’s the only way to stay financially solvent, but if you want to be independently wealthy, you’ll need to live way below your means.
There isn’t a specific number you must save or invest, but a few ways families achieve independent wealth include:
- Live off of one partner’s income, saving or investing the other partner’s income to achieve your financial goals
- Live off 40% - 50% of your income, saving or investing the rest to achieve independent wealth
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4. Get Out of Debt
The best way to achieve independent wealth is to stay out of debt, but life happens, and sometimes we get into debt, and that’s okay.
It’s important, however, that you get out of debt as soon as possible. Unless you have a 0% APR, you likely won’t get the same return you pay on credit card interest. It’s in your best interest to pay credit card debt off as quickly as possible, so you have more money available to save or invest for your future.
Once you get out of credit card debt, stay out. Don’t use your credit cards as an extension of your income. If you make large purchases or like credit card rewards, use the credit cards responsibly, only charging what you would normally buy and paying the bill off in full each month.
5. Avoid Lifestyle Creep
As you climb up the corporate ladder or achieve success working for yourself, it’s easy to let lifestyle creep settle in. Buying a bigger house, driving a nicer car, or taking more vacations is easy when your income increases, but it decreases your chances of financial independence.
Instead, bank your raises or higher income. Find ways to invest it and let your money work for you even harder than before. Inflating your lifestyle is temporary and won’t get you closer to your goals to be independently wealthy. Think of your future and invest the difference rather than going for temporary thrills.
6. Automate Your Savings
If you’re bad about saving, automate it. There are a couple of ways to ensure you always save, no matter how busy you get:
- Set up direct deposit with your employer - Most employers allow you to split up your direct deposit, sending some to your checking account and the rest to your savings or investment accounts. Take advantage of the ability to automate your savings, so you don’t risk forgetting or spending the money.
- Set up automatic transfers in your bank account - If you work for yourself or don’t have direct deposits, set them up in your bank account. Most checking accounts have the option to automatically transfer a set amount of funds on specific dates. Check your budget and determine how much you can transfer to your savings and investment accounts automatically each month.
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7. Track Your Budget and Net Worth
Setting up a budget is one thing, but tracking is the key to success. You can make the best budget on paper (or in an app), but if you don’t track it, you won’t know if you’re following it.
Use an app like Mint to easily track your budget and your net worth. Look at your progress and make adjustments as necessary, whether you're not achieving your goals like you thought you would or you have extra money you can allocate to your goals to become independently wealthy.
8. Invest Your Money
The earlier you invest, the better. Your money needs time to grow. Even if you can only invest a small amount today, every dollar matters and time is most important.
If you’re young, you can invest aggressively because you have time to make up for any losses. Aggressive investing brings higher returns but also puts you at risk for higher losses.
If you’re older (closer to retirement), you may want less aggressive investments or at least a balanced portfolio between aggressive and conservative investments.
Use robo-advisors if you want automated investment portfolios or discount brokers if you’d prefer to manage your investments. Watch the fees and stay on top of the latest news to ensure you’re making the most of your investments.
9. Increase Your Income
If you’re still working, consider increasing your income. If you’ve maxed out at your job, think of passive income sources such as:
- Investing in the stock market
- Investing in real estate
- Starting a side gig that offers passive income (write an ebook, create a course, sell stock photography, etc.)
You can also start a side gig that requires active participation. The sky's the limit, and most side gigs can be done in your free time - you set the hours and how much you work and/or make.
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10. Stay the Course
Even when the going gets tough, stick with it. Keep your eye on the prize - becoming independently wealthy. It may not seem easy or as if your goal is so far away that you’ll never reach it, but it gets easier.
Stick with the plan, revisit your progress, and make adjustments as necessary, but don’t give up.
Anyone can be independently wealthy. It takes careful planning and regular tracking of your progress. With the right goals and steps, you too can achieve them. First, figure out what having independent wealth means to you and then put the plans in motion to achieve it.