Steps to Financial Independence

9 Steps to Financial Independence

By Joycetisa | Tracednews | 19 Sep 2021

However, how can you achieve financial independence? What are the requirements for that? We will walk you through the following steps to financial independence:

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1. Establish a personal aim of liberty for yourself.

What should the appearance of your own financial independence be? Your response to this question will eventually decide the amount of money you need to accumulate. Those who like their work and want to work just need a sufficient amount of passive income to allow them to pick their employer and working hours at any moment. However, if you want a life free of labor, all money must come from passive sources.

2. Earn money

Step 1 is a strategy, but it does not guarantee freedom. Because you must labor in order to earn money. Extensive training and effective pay negotiations will result in a competitive, if not above-average, compensation. The objective is to maintain income growth.

3. Conserve

Spend less and consider what is really required. Simplifying your life enables you to invest more money and achieve financial independence.

4. Invest

Immediately invest any remaining funds. Ascertain that the stocks or mutual funds you purchase have minimal costs. A complimentary depot saves you money that you might very well spend elsewhere. Now you can put your money to work for you!

5. Select investment items that provide a high rate of return.

While stocks, ETFs, and other assets all guarantee a reasonable return over time, dividend-paying stocks are also appropriate for investment. In recent years, a return of about 4% to 6% was considered reasonable with diversified equities. If you invest in real estate or equity crowdfunding, you should seek a comparable rate of return.

6. Reinvest profits

If you earn interest or dividends on your investments, these funds are reinvested. This leads to compound interest effects over time, which accelerates your progress toward financial independence.

7. Make a plan for how you want to spend your financial independence.

Your life will alter if you quit working. Calculate the subsequent costs. Certain expenses, such as the monthly public transportation fare, are removed when you stop working. What are your plans for your spare time? Are there any other costs? Make an impression! It shows how much income your assets must produce to attain financial freedom.

8. Remit taxes and health insurance premiums

Even after quitting the workforce, there must be expenses to include in your calculations: Income from stocks and other assets, as well as interest, is subject to withholding tax, a solidarity surcharge, and a church tax. Rental income is taxed at your marginal rate. Additionally, if you are no longer employed, you must get optional statutory health insurance.

9. Conquer dry periods

If the stock market crashes, you may be forced to temporarily reduce your expenditures. This way, you protect your possessions and do not have to give up your life to the substance. What happens then? Maintain your adaptability! You may reduce your expenditures or take up a part-time job until prices recover.

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