When you think of someone who has independent wealth, what comes to mind?
For most people, being independently wealthy means you can spend large amounts of money without worry. You’ve reached a point where your needs and wants are met easily and you have no feelings of financial insecurity whatsoever!
If truth be told, most people want to become independently wealthy so they can buy more goods and spend more money. They dream of becoming millionaires simply so they’ll have a million dollars to spend!
However, most everyday millionaires don’t spend considerable amounts of money. Typically, they aren’t flashy nor do they buy as many status symbols as you would think. Instead, they’ve learned to manage their money and build wealth, so they can afford the ultimate luxury – the choice over how they’ll spend their time!
In America, most workers live paycheck to paycheck which handcuffs them to their jobs. They’re completely dependent on their employers to provide them with an income. Without a job, they’d have no way to pay their bills and make ends meet!
However, those who have independent wealth are not reliant on an employer to earn a living. They’ve created wealth and built financial freedom to such an extent that they’re able to support themselves indefinitely!
You become independently wealthy once you have enough assets that your passive income or decumulation strategy covers your bills continually. When it does, you’re no longer forced to work. Instead, you have the power to choose!
While some people experience a financial windfall that leaves them independently wealthy, the vast majority earn it themselves. According to Fortunly, 72.5% of all millionaires are self-made which should give you tremendous hope that you can become one, too!
Here are 10 steps that will help you build independent wealth!
Before you can become independently wealthy, you first need to know where you stand financially. One way to do this is by taking a financial assessment. It gives you a full picture of your financial situation and may point out some clear improvements. Alternatively, a personal financial statement can also help highlight your position.
Once you have a complete list of your income, expenses, assets, and liabilities you can move on to…
It’s important to realize that being independently wealthy has different interpretations. To some people it could mean traveling the world, spending more time with family, or even continuing to work in one capacity or another.
Having said that, you need to determine what independent wealth looks like for you and these questions can help.
Once these questions get answered, there will be a greater insight into your plans for the future. Not only that, but you’ll be able to set SMART financial goals which help you turn them into reality!
With your goals set, the next step is creating a budget that will help you achieve them!
Whether you realize it or not, a budget is a spending plan for your income. It outlines how your earnings will pay bills and more importantly, save. With savings, you can begin establishing an emergency fund, paying down debt, or building a cash runway – all of which can make headway towards your dreams!
While creating a budget is a step towards becoming independently wealthy, sticking to it can be another thing altogether. Despite many people’s best intentions, they get distracted, are unrealistic, or lack the financial discipline to follow their budget through!
On top of that, there are going to be challenges that cause stress and make you feel uncomfortable. To cope, you may spend emotionally or buy impulse goods without even noticing. In the end, this could bust your budget and undo forward progress!
To stay within the confines of your budget, try tracking your spending. In doing so, you’ll see the amounts that have been spent in each budget category and how much is left. Using this information, you can make adjustments to your spending to stay on budget!
Also, consider monitoring your net worth. Like your spending, it shows progress which can help you stay motivated to continue building independent wealth!
For many people, it’s a struggle to save money. They tend to spend everything they make or live beyond their means which prevents them from saving. Instead of building independent wealth, they’re barely getting by or are falling deeper into debt!
Living below your means is key to fulfilling your dreams. Not only that, but the further your burn rate gets reduced, the shorter the time it will for you to become independently wealthy, too!
For example, imagine two different employees are making $100k per year. If Employee A spends $90k, then they’ll have $10k to put towards their goals. But that also means their lifestyle costs $90k and they’ll need to earn that amount from other sources to be independently wealthy. Whereas if Employee B spends $50k, then they’ll save $50k, too. With lower living expenses, they have a large surplus which allows them to build and achieve wealth faster!
Whether you like it or not, there will be obstacles and challenges on your path to independent wealth. For instance, your car could break down, you might get laid off, or you may need urgent medical treatment.
For whatever unforeseen events head your way, you need to have rainy day savings and an emergency fund. With them, you’ll have a cash cushion to get you through difficult situations. But without them, you’ll likely have to use credit cards or take on debt – both of which subtract from your wealth, rather than adding to it!
Insurance can also safeguard your finances. Having adequate coverage reduces the risk that a major unexpected expense turns into a full-blown personal financial crisis!
It’s probably safe to assume that if you’re reading this article you want to build independent wealth. But nothing will destroy your chances of doing that more than consumer debt!
In most instances, people take out debt to buy goods and services using money they don’t have. Sometimes, they’re dependent on debt to sustain their elevated lifestyle or to keep up with the Joneses. No matter the reason, once debt gets taken out, it has to be repaid which causes them to waste money on interest!
Not only that, the power of compounding causes debts to grow larger, too. As they do, workers have to spend more of their futures working to pay for their past purchases, creating further dependency on their employers!
As a tightwad, I realize that reducing your monthly expenses is crucial to building independent wealth. It builds discipline and eliminates financial waste, giving you a high savings ratio. But, you can only cut your spending so far before you start feeling extreme deprivation or that life is dull.
Once you’ve cut your spending to a sustainable level, then it’s time to focus on increasing your income. You can do that by:
Unfortunately for most people, once they start marking more money they start spending more, too. Their cost of living increases, making it harder to reach their goals!
While some lifestyle creep is normal, it still needs to be within reason. After all, the whole point of boosting your income is so you can save and invest more money!
Once you have emergency savings, any extra money that’s left sitting in the bank loses value due to inflation. Instead of your capital growing, its purchasing power shrinks which makes it almost impossible for you to become independently wealthy!
To beat inflation, you need to invest your money and earn a real rate of return. This allows your capital to grow and you to begin building wealth!
When it comes to investing, you have many variables to consider. A few of which include the different accounts to grow your nest egg, traditional vs alternative assets, and the tax-related implications of each.
No matter which options you choose, the most important thing is that you start as soon as you can!
Oftentimes, people get caught up and consumed by their finances. They’re so focused on budgeting, saving, and investing that they forget to enjoy life!
While building independent wealth can be fun and exciting, it doesn’t reign supreme. After all, regardless of how much you have, there will always be some things that money can’t buy.
Along the journey, be sure that you’re taking care of yourself by celebrating your wins, taking breaks, and scheduling time off. In doing so, you’ll get some much-needed rest, allowing you to come back recharged and refreshed!
When you stop and think about it, the path to independent wealth is clear. As long as you follow the steps from above, then at some point down the line, you’ll achieve it.
Despite how easy it seems, not everyone will become independently wealthy. But with a plan, persistence, and perseverance; you can!
What does having independent wealth mean to you? Comment below.
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