“Are you on track for financial independence? Assess yourself using these 5 signs”
We are going to remind you of something really important.
Financial independence can lead directly to a more secure financial future: the fundamental pillars of financial independence include budgeting, spending, savings, retirement savings, compounding investments, mortgage management, and retirement planning (there are more things to know, but these are fundamental- so let’s start here)
Who needs financial independence?
This is a frequently asked question, but the answer is pretty simple: everyone needs financial independence, from children to students to parents. Teaching young children financial independence will help them make sound financial decisions and live their best lives- one filled with peace of mind, clarity, confidence and being able to contribute positively to the lives of others.
Read now: The right mindset for financial independence
What does it mean to be financially independent?
Financial freedom generally means having enough passive income to live off without having to work for the rest of your life. It’s a stage of wealth building where you can do what you want when you want it i.e. more than just being able to fund your personal needs, it’s about being able to fund your ideal lifestyle.
Below are attributes of financially independent people:
Budgeting pros
They monitor their spending habits so that they know what puts money in their pockets and what draws money out of them. They have a monthly budget and stick to it- they do not shop spontaneously or indulge in thoughtless splurges because they know the difference between their needs and wants.
Have an emergency fund and enough for savings
They regularly set aside part of their income in a savings account. Being financially independent means that they have an emergency fund- a stash of money that covers at least three to six months of income, which protects them from unexpected events such as a medical emergency or job loss.
Emergency Funds: What, Why and How Much?
Make plans for the future
They think long-term, so rather than providing Band-Aid solutions to their financial problems, they set achievable short, medium, and long-term goals, and then make plans to achieve those goals.
Are familiar with investment options
People focused on financial independence don’t leave their money idle in the bank where it can lose its value due to inflation. They understand different investment options and invest in multiple assets that help them spread their risks and diversify their investment portfolio. They also take intelligently calculated risks and do not invest in ‘get-rich-quick’ schemes.
Have good debt management skills
This means they understand the concept of credit- loans, credit cards and debt, so they only take on debt that would not affect their creditworthiness. They make their repayments promptly and use their credit cards so they can afford the monthly payments.
It all starts here
No need to worry if you’re not financially independent yet - with an understanding of how money works, you can live a fulfilling life. Our practical guide to finance will put you on the path to financial independence.
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