5 Steps Toward Financial Independence

By Sarah Winfrey on 1 July 2010 (Updated 27 June 2011) 5 comments
Photo: nattu

Whether you’re a brand new grad or regrouping after a layoff or other financial difficulties, you may find that it’s more difficult than you’d imagined to wean yourself from any monetary help you’ve been getting. Though most of the process is straightforward, it’s always good to remember what it takes to achieve financial independence.

1. Get a Job

While finding a job in your niche or industry is great, any job is better than none at all. With job markets still sluggish, getting your foot in the door anywhere will help you towards your financial goals. Once you’re in, it doesn’t mean you have to stay. Getting a job that will hold you over, though, may mean the difference between making it on your own and moving back in with the folds.

2. Know Your Expenses

It’s easy to get overwhelmed with the different types of expenses you have, particularly if you aren’t used to paying them yourself. While writing a check here and there will get the bills paid, you’re more likely to achieve financial independence if you’re intimately familiar with your expenses.

Knowing approximately how much you pay each month in certain categories will also help you find any problems. If your electric bill suddenly skyrockets, you’ll know you need to investigate to find the source of the extra charges.

3. Commit to Saving

Being financially independent doesn’t only mean paying your own way now, but making preparations to do so in the future. Plan ahead as soon as you have some extra money, and it will go far towards ensuring your financial independence even if something bad happens, like you lose your job or face a large, unexpected bill.

Put your savings away after your regular expenses are paid and before you buy anything else. This will help your savings grow and make sure that you stay committed to it in the long term.

4. Prioritize Essentials

Make sure you know how much money you’ll need each month, and categorize your expenses. Determine which ones are necessary, which are high priority, and which ones you can eliminate if you need to. This will help you know what to pay first, as well as how much money you need to make to achieve your goals.

Prioritizing your expenses also gives you a good idea of how much you need to make each month. If your expenses are high, consider lowering them by finding roommates or changing your lifestyle for a few months, until you can get more income.

5. Give Yourself a Deadline

Decide when it’s realistic for you to achieve your financial goals and make that your deadline. Once you have that in mind, you’ll know how long you have to find a job, find a place to live, and figure out your personal budget.

Deadlines provide fantastic motivation. With one in place, you’ll be more likely to follow through on your intentions and to do so in good time. Of course, your deadline isn’t absolute. If something falls through or your situation changes, you can always move it back. But don’t move it unnecessarily, because then it isn’t a deadline at all.

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Guest's picture

Great article! I think a lot of people are taking longer to become independent. I moved out / got a job right after college and spent the last year learning to manage my independence. Most of the people I graduated with, though, are still dependent on others.

Guest's picture
WolfPack

"Financial independence is a term generally used to describe the state of having sufficient personal wealth to live indefinitely without having to work actively for basic necessities"

What you describe is how to achieve financial dependence. Having to work to attain money to live instead of having your money work for you so you don't have to.

Guest's picture

1. The title of the article is 5 Steps Toward Financial Independence. It's hard to be financially independent if you're still in debt and have little or no savings! If you don't start somewhere (get a job, know your expenses/debts) you'll never get anywhere else (enough money to comfortably live without a job.)

2. I take anything I find on Wikipedia (no matter how well written, researched, or thought out it seems to be) with some skepticism. The actual quote from the source the Wikipedia article is citing says that "financial independence means the ability to manage your money in such a way that you have sufficient funds to live your chosen lifestyle without assistance from others." Up to and including being able to not need a job.

3. I think this is a great article to help remind all of us who aren't financially independent yet how to stay on track towards the goals we have. Most people want to be able to live without having to work someday. But many of us fall off the wagon (so to speak) somewhere down the road and occasionally need a little push or reminder of where to start again.

Guest's picture

Knowing your expenses is especially true when it comes to monthly fees. Too often we get sucked in to buying services or products because of their low monthly fees, but those monthly fees defiantly add up. Monthly fees usually chip away at whats left over at the end of the month, further hampering our ability to control our expenses and add to our savings.

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Guest's picture

Yes, to be financially independent takes a lot of hard work. I really like the first tip. Indeed being under employed is better than having no job at all. People with PhD’s even have a hard time looking for a job. The recession has made it even worse. Knowing expenses is so easy. I use a debit card as an alternative to risky credit cards. Now there’s no need to list down purchases at the end of the day. Transaction receipts are always there to make an easy track on them. And your only spending your own money. The saving part is really the hardest. But, recently I've tried dropping loose coins in a piggy bank and I know that they will amount to a larger sum one day.