What’s financial independence, and how do you get there?

Let’s take a closer look at financial freedom versus financial independence and how you get there.

What is financial freedom?

Financial freedom means that you have enough money to cover your expenses and live the lifestyle you want, on your terms, without debt, therefore, making enough money and having enough in savings, investments and emergency savings and still having money for the fun things in life, such as travelling and hobbies.

Financial freedom looks different to everyone, but essentially it means having enough resources to live and do what you want, without going into debt. It’s the step before financial independence.

What is financial independence?

Financial independence is what we all really want; it’s having enough resources and passive income so that you don’t have to work anymore and rely on a salary or your regular 9 to 5.

When you’re financially independent, you’re in a state of financial self-sufficiency, and you don’t have to rely on external sources any longer. It’s the key element to retiring early, but it requires careful, and usually long-term, planning to ensure that you have enough money for long enough to steadily take care of your expenses.

How do you get closer to achieving financial independence?

• Be debt free
  You can’t be financially independent if your finances are still controlled or influenced by debt. You want to be free from owing money because paying away money takes away from your ability to grow your money.
  
  Here’s how: start by paying off credit cards, overdrafts and any personal and student loans. Move on to bigger debt amounts, such as your home loan, so that you can move the money you would’ve spent on debt into wealth-building vehicles, such as savings and investment accounts.
• Have emergency savings
  Financial independence means having specific money set aside to help you deal with unforeseen expenses so that you don’t have to be dependent on debt. If you have enough cash (and assets that can be sold to turn into cash), you don’t have to rely on borrowing money for unexpected expenses; you can cover it on your own.
  
  Here’s how: check your budget to see where you can start saving more money and put it towards your emergency fund. Have a separate account that you automatically put money into every month. As you pay off your debt or you get more income, gradually increase how much you’re putting into it.
• Be on track with your retirement goals
  This is a crucial step because you need to have enough money and resources in place to sustain your lifestyle after you stop working. As with normal retirement, if you don’t have enough money to last you the rest of your life, you really can’t afford to stop working.
  
  Here’s how: if you haven’t already, start your retirement planning immediately. Step 1 is knowing how much you’ll need, then having the right vehicles (retirement annuities, investments, tax-free investments and pensions/provident funds) to help you get to that number. Review it every year to see how close you are and what you need to do to boost it.  
• Have passive income
  Having income without having to work for a salary is key. Passive income will give you additional cash flow so that you can have your savings for longer (giving them a chance to grow) and give you more freedom to do whatever you want with your money.
  
  Here’s how: passive income can come in many forms, from rental income to dividend payments, investment income, royalties and anything that keeps on giving you money without you having to work at it. You need to build a robust investment portfolio that will sustain your expenses and lifestyle.

TOP TIP: Whether your goal is financial freedom or financial independence, you need to have a plan to achieve it and go for it.

Speak to one of our expert financial planners about achieving it, today.

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_{Disclaimer: This article is solely intended for information. It does not constitute financial or investment advice or recommendation. Speak to a financial advisor or registered financial professional before making any financial decision(s).}