Can I really become independently wealthy? (Yes, it’s possible!)
I’m guessing you’re reading this post because you’re curious about what you have to do to become independently wealthy.
The good news is that building wealth is quite simple (which is not the same as easy). Whether you make a 6-figure income or you make $40k/year, you are capable of becoming independently wealthy.
That’s the good news.
The bad news (or, the *not as good* news) is that creating wealth takes time, patience, diligence, sacrifice, focus, commitment, and … should I go on?
In other words, if you want to achieve independent wealth, you’re going to have to get *serious*. And, you might even have to get uncomfortable.
But, the benefits of being wealthy (which I’ll talk about later) can far outweigh the hard work it takes to get there. Not only will you live in financial security for the rest of your life, but you’ll also be able to create a powerful financial legacy that could last for generations.
If you’re a late saver, becoming independently wealthy may seem like a pipe dream. However, I believe you can achieve your own version of wealth if your goals are realistic. You might not have 2 vacation homes and spend summers in Europe, but you *can* reach a level of wealth that provides you financial security for the remainder of your years.
So, depending on where you’re starting your journey, your vision of independent wealth can look very different than someone else’s. It’s important to define your idea of financial success for yourself, one that aligns with your goals and values.
And, if you do all you can but still don’t achieve independent wealth? Well, you may just end up financially independent, which is not so terrible. In fact, it’s quite the accomplishment.
Let me explain the difference between these two financial status levels next.
What is the difference between financial independence and independent wealth?
Although the two terms “financially independent” and “independent wealth” sound similar, these concepts are actually on different levels in terms of financial achievement.
Being financially independent can take on various meanings, depending on the context in which it’s being used.
The recent college grad who’s secured a good job with a substantial salary may think of himself as financially independent. He no longer depends on his parents to help support him and can pay all of his bills with his own money.
A second way you can use the term “financial independence” is by applying it to a person that can live without a job for an extended period of time. They have enough in savings and/or make enough in passive income to not have to rely on wages from employment. It doesn’t mean they won’t have to find ways to generate additional income later, but they have enough wealth to give them more choices.
The last definition I want to mention is probably the most common in the personal finance space. When someone is described as financially independent, this usually refers to having the ability to live off of savings and passive income for the rest of their life, being able to cover all expenses and live comfortably, without having to generate more income, ever. Because this achievement relies on how many years you have left to live, what your annual expenses are, and the lifestyle you want to maintain, financial independence will look unique for each person.
This might sound a lot like someone who is independently wealthy, but there is one fundamental difference that puts that status on a whole different level.
When you are financially independent, you still have to live within your means so that your financial resources will last throughout your life. For example, you might have to live within the boundaries of $40k/year to maintain your independence and not run out of money. Even though you’re considered financially independent, you still need to watch your budget closely, limit your spending, and monitor your expenses.
Being independently wealthy is similar in that you don’t have to rely on income from a job or other external sources. However, the main distinction is that you aren’t limited to a frugal lifestyle. You don’t *have* to pinch pennies in order to maintain the “independent” status.
In other words, being independently wealthy means you can live how you want, where you want, and do what you want, without being concerned about running out of money.
Sounds nice, eh?
Now that you know the difference, let’s talk about what it actually *means* to be independently wealthy.
What does it mean to be independently wealthy?
The phrase “independently wealthy” is somewhat self-explanatory. To be independent means being self-reliant, so you don’t depend on anyone else. And, being wealthy means being rich, prosperous, and having a lot of money.
Although the “independent” part of the term is straightforward, being wealthy is subjective. How much money should someone have to be considered wealthy?
The answer is, of course, it depends on who you’re talking to. How does one define “wealth”?
You might think of someone with a one million dollar retirement fund as wealthy. Or, you might believe you’d need at least $10 million in the bank to be truly wealthy.
This is because the amount depends on what you consider to be a successful life. If a quiet retirement in a small midwestern town, with no mortgage or other debts, is your idea of “living rich”, then you’ll probably require less to consider yourself wealthy.
But, if your dream is to travel the world, have multiple homes, and be a very generous philanthropist, then you’ll need more to be independently wealthy.
Either way, being independently wealthy requires you to have an abundance of financial resources that allow you to enjoy the lifestyle you want to have without limits, for the rest of your life. This means you could choose to work or choose to retire, and still be able to live comfortably on savings and passive income.
How much money do I need to be independently wealthy?
Now that you know what independent wealth is, you can personalize what it would look like in your own life.
Regardless of how much you think you’ll need to be independently wealthy, there are some common requirements everyone must meet if they want to achieve this financial goal.
If you hope to retire from your job and never have to work again, you need either substantial savings that generate enough growth through compound interest, or passive income that builds wealth without significant effort on your part. The ideal situation is to have both.
And, although it isn’t necessarily required to be independently wealthy, being debt-free can definitely help you ride out the bumpy economic storms when they happen and come out the other side without much harm done.
The key to determining how much you’ll need to be independently wealthy is in identifying your financial goals.
Would you be totally happy living in an apartment and spending most of your time traveling around the world? Or do you want to pay off the house you raised your family in to create new memories with your grandchildren? Or do you want to live a minimalist lifestyle and do a lot of volunteering?
Each scenario would require its own unique level of savings and passive income to achieve and maintain independent wealth.
First, you would start with creating a mock budget for your “dream” life. Add up all of the projected expenses you would need to cover in order to achieve your biggest goals completely and comfortably. Then, categorize them as either necessary or discretionary expenses.
Let’s use the following budget as an example:
- Necessary expenses (mortgage, insurance, utilities, etc) = $3,000/month, or $36,000/year
- Discretionary expenses (dining out, entertainment, traveling, etc.) = $2,000/month, or $24,000/year
- Total expenses = $3,000 + $2,000 = $5,000/month, or $60,000/year
Many financial advisors suggest you’ll need at least 25 times your annual expenses to achieve financial independence. This number comes from the 4% rule, which states that a savings withdrawal rate of 4% should allow your savings to last over 25 years (the typical retirement time span).
Using the numbers above, this would equal:
$60,000 x 25 = $1.5 million
However, this doesn’t really account for that major difference between financial independence and independent wealth, which allows for even greater financial security.
I like the way PhysicanOnFire provides for this heightened level of wealth. His approach for moving beyond financial independence and achieving even greater freedom in your finances is to first *double* your discretionary expenses before you apply the 4% rule.
So, applying this principle, your number for independent wealth would be:
($36,000 + (2 x $24,000)) x 25 = $2.1 million
Of course, this is not a comprehensive approach, a bulletproof equation, or a magic number. It doesn’t consider any investment gains or losses you’ll experience, nor does it include the impact of inflation. I didn’t even mention the inclusion of social security benefits or any passive income you’ll add to your wealth during retirement.
But, it will give you a number to work with and work around. If your budget numbers are realistic, you’ll have a fairly accurate calculation of how much you’ll need to be independently wealthy in retirement.
How do you know if you’re independently wealthy?
Reaching independent wealth takes diligence and patience (more on this later). If you’ve been working toward this goal for several years, you may be too focused on making continued progress and not realize how close you are.
Review the list below and compare these circumstances to your own. If you can check even one of these, you are well on your way to being independently wealthy:
- You can live your dream life without concern for money.
- Financial challenges and emergencies outside of your control have a minimal effect on your finances.
- Your net worth is greater than 25 times your annual expenses.
- You can easily support yourself on savings and passive income for the long term.
- You are not reliant on any financial resource outside of your control (such as employment, social security, alimony, etc).
- You can fund your entire lifestyle in cash … every day … for the rest of your life.
If you can’t say any of these are true for you right now, then keep pressing on! The longer you build wealth, the faster it will start to grow. Stay motivated and committed to your goals, and review your progress annually to see how close you’re getting to independent wealth.
The mindset & habits to achieve independent wealth
If you never want to worry about money again, then you may need to uplevel your thoughts and your habits. You can’t keep doing the same things you’ve always done, or else you’ll continue to get what you’ve always gotten.
Those who have achieved independent wealth have learned to develop a healthy and abundant money mindset and build the right habits that propel them toward their goals.
I encourage you to spend some quality time examining your own thought patterns and habitual behaviors. It’s critical that you identify those mental barriers that are keeping you from progress. If you try to take action without addressing your limiting beliefs, you will eventually find yourself back at square one.
To give you some inspiration, I’ve explained a few empowering beliefs and positive habits that independently wealthy people practice consistently.
Be financially disciplined
Achieving independent wealth requires the ability to control your finances. If you don’t have a firm grasp on where your money is going and how it’s working for you, you’ll never save enough to reach this status.
Being financially disciplined means doing what is necessary to make the best financial decisions, despite your feelings and circumstances. It means making your financial goals a priority and adopting those thoughts and habits that support them.
Some actions you can take to practice financial discipline are following a budget, living below your means, and paying yourself first. All of these require intention and planning.
Aligning your mindset with these habits will boost your efforts. Learning how to delay gratification, avoid emotional spending, and escape the trap of lifestyle inflation will strengthen your discipline.
Most people never build significant wealth because they do not have the discipline to do so. If you ever want to reach financial freedom, you must maintain boundaries and order in your money management.
Track net worth
It’s one thing to dream about having independent wealth. It’s quite another to hold yourself accountable in achieving it.
Those who have strived for financial freedom know that they must continuously measure their efforts against their goals. This is necessary for knowing the actions they must take to get closer to success.
One way to track your progress toward independent wealth is by calculating your net worth.
Your net worth is an important metric that reflects how well your spending decisions are strengthening your financial position. It’s a snapshot of where you’re at on the path toward independent wealth.
Many people, especially those with a mortgage, have a negative net worth. This number can be discouraging, and some believe that having more debt than assets is just a part of life. So, they never try to turn that negative number into a positive one.
When you calculate your net worth, let your result motivate you. Allow it to inspire you to take action and identify the decisions you can make to increase it. Even if your number is far from positive, you can use this knowledge to stay committed to paying off debt and building your savings.
The more tuned in you are to your financial position, the more aware you’ll be about how your decisions are affecting your outcomes. Do what you can to move the needle in a positive direction, and hold yourself accountable for making consistent progress.
You might think that those who strive for great wealth are only driven by money. For some, this might be true. But, if you measure your value by your bank account balance, you will never have financial peace. Making your net worth more important than your self-worth will only create tight fists that are unable to give.
Those who have achieved both independent wealth *and* financial peace have the self-worth and confidence to know that money does not define them. They understand that money can support their values but doesn’t make them valuable.
Having a healthy self-worth will keep your perspective in check. You’ll know when to focus on your kids and your marriage instead of working 80 hours a week. You’ll be willing to take more calculated risks because you aren’t afraid of failure. You’ll align your financial decisions with your deepest values. And, you’ll want to give more because blessing others is a greater blessing than having more money.
Do the thought work necessary to disentangle your value as a person from the value of your bank account. Then, when you do achieve independent wealth, you can enjoy it rather than worry about how you’ll lose it.
Be wise with your time
Striving for independent wealth is not for the faint of heart. You must maintain a laser focus so as not to get sidetracked and give up.
Someone with independent wealth knows that staying on track is directly related to how they spend their time. Being disciplined with how they fill their time can be the difference between success and failure.
If you engage in activities that trigger your spending habit, drain your motivation, or encourage laziness, then these consequences will have a negative influence on your progress.
Turn off Netflix and stop filling your mind with daily news. Instead, read books and listen to podcasts about wise financial strategies. Or, spend your time building a side hustle that can make your savings grow faster. Commit to daily visualizing and meditating on your ideal life. Review your goals and imagine taking the steps to achieve them.
Those who’ve built great wealth operate from a different mindset. They haven’t just learned how to be diligent with their money, they’ve also learned to be purposeful with their time.
Create a list of things you can do that will be productive. When you’re tempted to zone out on social media, look at your list and choose something that makes better use of your time.
Be curious and teachable
If you’re not rich yet, then you still have a lot to learn about money. Otherwise, wouldn’t you be rich?
Just because you believe you’re terrible with money doesn’t prove anything. That is just a thought that’s limiting your willingness to keep trying. And, it certainly doesn’t mean you’ve learned everything you need to know but you’re just not smart enough to achieve great wealth.
If you really want to be wealthy, you must remain teachable and curious.
You must seek out those people more successful than you that you can learn from and acknowledge there are still lessons yet to be mastered.
You must have the curiosity to keep asking questions until you find an answer that unlocks a door in your mind.
Those with independent wealth are lifelong learners. They always want to know better ways to be wise with their finances. They have endless questions to further their knowledge. They know that they don’t have all the answers, no matter how successful they are.
In addition, they are active with their learning. They use their educated judgment to apply the instruction they’ve received. Then, they keep what’s effective, disregard what’s unprofitable, and then restart the learning cycle.
If you feel stuck in any area of your life, you may have closed yourself off to growing in knowledge. If you want to experience powerful life change, be someone who remains teachable and curious.
Be committed to the long-term
Building wealth takes time. Building wealth to last you your entire life can take a really long time.
Those who never have to work another day in their lives started their journey toward financial freedom with a vision that was years into the future. They knew there weren’t any shortcuts, and the path would be challenging with economic downturns, financial setbacks, and failed strategies. But, they kept their focus on the big picture and were committed to their goals for the long haul.
Becoming independently wealthy is a long-term goal that will test your endurance. There will be times when you want to give up and settle for less. You’ll have doubts about your ability to achieve such lofty ambitions. You’ll come up against many valid reasons to stop trying.
To push through the resistance, it’s helpful to remember that short-term wins and losses are not that significant in the grand scheme of things. You can’t give too much attention to occasional drops in the stock market or losses in your retirement fund. You must keep your sights much farther into the future, where you know that your consistent efforts will pay off.
Be willing to be uncomfortable
Anything worth pursuing is worth sacrificing for. And, if you want to set up your future self with lifetime financial security, you’ll have to make your present self endure some discomfort.
It’s not easy giving up that new car so you can get rid of the monthly payment. It’s tough to sell the home where you raised your children so you can downsize and save more money. And, who really wants to work another job (or two) when you’re already putting in 40 hours a week?
Building wealth is simple in its calculation. Make more money + spend less money = *wealth*
You can’t avoid one part of the equation and be successful. Getting a second job but still charging up your credit cards is going to keep you spinning your wheels.
Those who have worked diligently for their wealth were willing to put comfort aside and do what most people won’t. But, now, they can do the things that most people *can’t*.
Which person do you want to be?
15 steps to be independently wealthy
Now that you know how you can pursue independent wealth with the right habits and mindset, let’s talk tactics. Here are 15 action steps you can take as you move toward financial freedom.
1. Set SMART financial goals
You can say you want to be independently wealthy, but unless you define some specific goals, it won’t happen. You must have a clear direction that will guide you on a daily, monthly, and yearly basis.
Your goals will generally focus on generating more income and paying off debts, but you must provide the details. Using the SMART format to set your goals will provide you with a structure that will focus your efforts and increase your chances of success.
- (S)PECIFIC: be clear and definite about what your goal is and state exactly what you want to accomplish
- (M)EASURABLE: assign a value to your goal that you can measure and track your progress against
- (A)CHIEVABLE: identify how you will achieve the goal
- (R)EALISTIC: make sure your goals are attainable
- (T)IME-BOUND: give every goal a deadline
Write down your goals, both short-term and long-term, and the steps you must take to achieve them. Seeing your goals in writing makes them more concrete and even doable.
Then, read them every day. In fact, keep them with you *all the time*. This will help you stay focused and motivated.
Here is an example of how to set a SMART goal of paying off your auto loan:
- Specific: I want to completely pay off my auto loan
- Measurable: I want to pay off the entire balance of $5,500
- Achievable: If I cut expenses by $500 a month, I can achieve my goal
- Realistic: I can decrease my dining out budget by $300 and my clothing budget by $200
- Time-bound: By applying $500 a month to my loan balance, I will have it paid off within 11 months
When you have specific, written goals to guide your decisions, you’ll build wealth faster and experience greater success.
2. Always use a budget
A budget is like a roadmap for your money. It tells you how much you have to spend and where you can spend it. Without tracking your income and expenses carefully, you don’t know where your money goes.
I recommend the zero-sum budget for those who want to account for every dollar they make. This budgeting method will maximize your income, reduce budget leaks, and increase savings.
If you’d rather have a less hands-on approach, you can download an app like Mint or Personal Capital and let it track your income and expenses automatically. You’ll quickly see which categories you overspend and where you need to make changes.
Take control and tell your money where to go with a monthly budget. You’ll discover better ways to manage your money so you can achieve your financial goals faster.
3. Cut back on expenses
Once you’ve been following a budget for a month or two, you’ll be able to easily identify those areas where you overspend. These are the obvious categories to reduce in your budget.
But, you can also consider finding ways to lower those expenses that are fixed, such as your mortgage or insurance premiums. Shop around for better rates, and you might be surprised how much you can save.
Look at all recurring and non-recurring expenses. Can you cut back on your cellphone, internet, or cable plans? Do you have expenses, such as memberships and subscriptions that are unnecessary?
When you’re uncertain if you should eliminate an expense in your budget, ask yourself these questions:
- Is this expense necessary or unnecessary?
- Does this expense align with my money values and financial goals?
- Will I miss this expense if I cut it out of my budget?
- Will eliminating this expense negatively affect my life?
Be intentional about finding every opportunity to lower your budget expenses. However, don’t get yourself in a position where you become resentful that you can’t have any fun. Find the balance that works for you.
Any money you save by cutting expenses should automatically become a part of the amount you save each month.
4. Save an emergency fund
One emergency can wipe you out financially if you aren’t prepared. Whether you lose your job, fall ill, or your car breaks down, any of these unforeseen circumstances has the capacity to derail your plans for independent wealth.
Without having some savings set aside for unexpected expenses, you could find yourself deeper in debt. This can cripple your efforts to save money and will decrease your net worth. You would lose the opportunity to maximize savings as you pay down the balance and the interest.
Having a backup account strictly for emergencies is essential to building wealth. You can avoid debt and the added cost of interest rates, which has a negative impact on your budget. In addition, you can resolve the issue immediately and then refocus on saving money. In other words, you’re not carrying that expense for months before you can get back on track.
Financial setbacks can be stressful and discouraging. But, you don’t have to turn an inconvenience into a crisis. Having an emergency fund will help keep you on course and moving forward.
Typically, you should save up enough money to cover 3 to 6 months of necessary expenses. This can carry you through a short-term job loss or major setback. But, to strengthen your financial security on your journey toward independent wealth, save as much as 12 months of expenses.
I should mention that surprise expenses are inevitable, so don’t gamble on this step. Don’t think *if* they happen, think when. And be prepared for when they do.
5. Pay yourself first
This was the one money lesson my parents taught me. (Er, at least it’s the only one I remember …)
So many people think that savings means whatever money is left over. And, *surprise*, there’s rarely anything left over after you pay all the bills and have a little fun.
To become independently wealthy, you must get into the habit of saving money before you spend a dime.
Before you pay the mortgage.
Before you pay the electricity bill.
Before you pay your cell phone provider.
Before you pay your cable bill.
Before you buy the groceries.
Before you go shopping for new shoes.
Pay yourself first. Make it the most important bill in your whole budget. This is making your future the priority.
Many financial advisors recommend saving 15% of your earnings for retirement. However, this is if you’re starting at 25 and saving consistently for 40 years. If you’re a late saver, you’ll need to catch up by saving more.
The easiest way to pay yourself first is through automatic deposits into a separate account. There are a few ways to do this:
- You can direct deposit contributions to your employer-sponsored 401(k) or an individual retirement account and let your earnings compound. Your savings will come out of your paycheck before you ever see it.
- You can set up automatic transfers that recur every payday. As soon as your check hits your account, you can have a fixed amount deposited into a separate savings account.
- You can use an app (like Acorns) or your bank’s saving program to save more money every time you make a purchase with your linked card. You can choose to save the difference between the total and the next nearest dollar, or you can opt for saving a fixed amount every time you buy something.
If you want to be independently wealthy, you can’t let savings be an afterthought. Make the necessary adjustments to your budget so you can live off at most 85% of your income. Then, save the rest in an account that pays interest.
Building wealth is not a race. There are no tricks or secrets to it either. You simply have to make saving money the highest priority, and be consistent with it over a long period of time. It’s the most powerful tactic you can do to retire a millionaire.
*If tithing is a part of your faith, then make this your first priority! And, if you can’t start with 15%, then start where you can. Over time, you’ll be able to increase the percentage as your income grows and you learn to cut back on expenses.
6. Eliminate & avoid consumer debt
Some say there is good debt and there is bad debt. I say that any debt will hinder your efforts to save money, so eliminate *all* debt if you can.
However, there are some debt vehicles that give you the opportunity to increase your net worth. For example, getting a mortgage to purchase a home that will gain in value quickly. Or, taking out a business loan that will give you the opportunity to create another income stream.
Then there’s the type of debt that only holds you back from your goals and prevents you from building wealth. Consumer debt like credit cards, auto loans, student loans, personal loans, and payday loans typically have high interest rates and will undermine your efforts to achieve financial freedom.
One of the most important SMART goals you can set is to pay off your high-interest debt. Come up with your own plan to pay it off quickly. Set a deadline, get a second job, cut out unnecessary expenses, and get laser-focused on eliminating your debt.
If you feel overwhelmed, find a trusted credit counselor to help you get a plan in place. Don’t be ashamed to reach out for help! Remember the #5 habit of the independently wealthy mentioned earlier? Be teachable and curious. Let those who know how to get out of debt help you do this for yourself.
And, once you’re debt-free, stay that way. Cut up the cards, live below your means, and avoid lifestyle creep. Don’t let debt keep you from your dreams.
7. Live below your means
If building wealth is so simple, why aren’t there more millionaires in the world?
The answer is not so cut and dry, but there is one trap that many people fall into (especially in Western culture). That’s the trap of living beyond your means.
Your “means” refers to the income available to you that allows you to buy things. This does *not* include your credit card limits or how much you can get approved for a loan.
Living within your means indicates that your spending boundaries are defined by your income. When you cross those boundaries, you are spending money that you didn’t make. This leads to debt and getting stuck in the paycheck-to-paycheck cycle.
But, if you go one step further (or, maybe I should say one step back), you can choose to live *below* your means. This is when you choose to make that boundary line a little smaller. This allows for a “buffer” between your spending limits and your income. And, this buffer is where your greatest wealth potential lies.
I know. This is not the American way. We work hard for our money, so why shouldn’t we have some fun with it? Isn’t our money supposed to make our lives better? What’s so wrong about spending all that’s left after I’ve paid myself first?
You’re absolutely right. If you’re responsible with your income, following a budget, and setting savings aside, there’s nothing wrong with spending to the edge of your boundary.
But, striving for independent wealth isn’t just about doing what’s wrong or right. It’s about doing what’s best.
The wider you can make the gap between your spending and your income, the greater your potential to build wealth for the future. The more you can save now, the faster it will grow later.
Another pitfall that many get stuck in is lifestyle inflation (also known as lifestyle creep). This happens when your lifestyle increases with your income. So, when you get a raise, you think the next logical move is to uplevel your living expenses. Get a bigger house, a new car, a better TV.
Again, there is nothing wrong with spending your income on things that make your life more comfortable and enjoyable, as long as you’re living within your means.
But, the *best* thing you can do with any additional income is to apply it to your savings and investments. After all, if you want to be independently wealthy, the goal of increasing your income is to create a greater capacity to save more money and increase your net worth. If you spend the excess on stuff that doesn’t support your financial goals, you’re wasting a valuable opportunity to reach your goals faster.
You don’t have to live as if you’re poor, just be intentional about allowing your expenses to rise much slower than your income.
8. Increase your income
If you struggle with limiting beliefs, this could be a huge barrier for you. However, it’s one you need to overcome if you want to achieve independent wealth.
I guarantee you – you *can* make more money than you’re making right now. The easiest way to increase your income is to get paid more for the work you’re already doing.
Sometimes it can be as simple as asking for a raise. After all, you won’t know if it’s possible until you ask, right? Set up a meeting with your employer and talk about negotiating a higher salary. Don’t just ask for it, though – prove to him/her why you deserve it. Prepare your ‘speech’ beforehand so you’re ready to talk freely about the reasons you feel you deserve a higher salary.
If you feel you’ve hit the pay ceiling in your current job, it might be time to move on. Do your research for the current income levels of people with your experience. Update your resume and start applying at places you think can meet your income demands.
Another option to increase your income is to level up your skills. Go back to school or undergo additional training, and look for opportunities to add to your skillset. If your current boss knows you’re taking the initiative to offer more as an employee, you could be first in line for the next promotion.
If you have no motivation to move up your company’s ladder, maybe it’s time for a career switch. You may have to take a pay cut initially, but if you find more contentment in a new role then your enthusiasm could ultimately result in a higher paycheck.
Consider the experience you’ve acquired, the skills you’ve learned, and the passions you have when deciding on a new career. If you’re going to go through the discomfort of a huge life change, make sure it’s worth the necessary sacrifices. You want to get the best returns for your efforts so you can make greater gains toward your goals.
9. Diversify your income
Millionaires have an average of 7 streams of income. While you may not need (or want) that many, the key is to bring in as many streams as possible. The less you depend on one source of income, the easier it is to become independently wealthy.
When you have multiple streams of income, you can set certain streams aside strictly for saving and/or investing for the future, especially retirement.
Here are a few ways to add income streams to your budget:
>>Get a side gig
I highly recommend finding a side gig to powerboost your saving goals. Having this extra income will help you pay off your debts and save money faster. Even just bringing in a few hundred more dollars a month can make a huge difference in your progress. Especially when you apply your side gig income toward your investments, where it will continue to grow for years to come.
You don’t have to be highly skilled to work a side hustle. Just think of something you enjoy doing, and offer to do that for someone else. This could be:
- Walking dogs
- Taking pictures
- Creating a website
- Baking cakes
I could go on, but there are thousands of ways you can offer your passions and talents to make someone else’s life easier. If you want more inspiration, read my post about 50+ easy ways to make extra money.
When you buy low and sell high, you make money. If you do this repeatedly, you can have a very lucrative extra income stream.
The easiest way to do this is to find good deals at garage sales and thrift stores, then spruce them up and resell them at a profit. You can also check out the discount shelves at stores like Target or Walmart for products that can sell for more on Ebay or Craigslist (this is called retail arbitrage).
If you have a knack for painting or making simple fixes, you can make even more money. Many people don’t care about the potential value in an old piece of furniture – they just want it out of their garage and will give it away for free! With some new hardware and a fresh coat of paint, your profit can be many times the investment.
Also, you can even create your own products to sell. Digital products are a booming business, and if you can make your own downloadable resources, you could skyrocket your income.
Some ideas include:
- Journal pages
- Budget tools
- Wall art
- Yearly planners
- Greeting cards
- Online courses
>>Rent a room (or house)
If the kids are out of the house, you can make some nice income with those extra bedrooms that are just sitting empty. You can rent a space for the long-term or just on the weekends.
For a permanent resident, consider making a private offer to someone in your church or your social circles. Ask your college-aged kids if they know someone responsible who might be interested. Be discerning about who you allow coming in and out of your home on a daily basis.
If you don’t want to make a long-term commitment, you can also offer a bedroom as a short-term option for travelers who only need a place for a few days. Sites like Airbnb and VRBO can help you market your space while also offering insurance protection.
Those who have already achieved independent wealth didn’t do it by stuffing cash under the mattress or leaving their savings in their bank account.
To create wealth, start making your money work for you. Invest in stocks, bonds, and CDs to create an ongoing, passive income stream.
There is always an element of risk when you invest in the stock market. But, if your focus is on the long-term (see mindset #6 above), then you won’t be deterred by occasional losses or setbacks.
>>Invest in dividend-paying stocks
Dividends can be thought of as a form of profit-sharing. You essentially become a stockholder of a company, and they pay you a share of their profits on a regular basis.
Not all stocks pay dividends. They are usually offered by large companies that have had financial stability for many years.
Dividends can be paid out on a quarterly, annual, or biannual basis, depending on the policies created by each individual company.
There also different types of dividends. Cash dividends are the most common type, but there are also stock, DRIP, special, and preferred dividends.
Investing in stock dividends can be a stable way to create additional income streams. Try to find companies that continue to experience profit growth, so the income can outpace inflation.
10. Diversify investments
When you’ve got a budget in place, slashed your expenses, and created multiple income streams, you’ll be able to increase your savings rate and build wealth faster.
One of the most effective ways to grow your savings is through investing. As I mentioned before, there is a degree of risk when you invest your money in the stock market. The key to minimizing this risk is diversification.
When you diversify your investments, you’re able to average all of the gains and losses within your entire portfolio, so your total returns are more stable and consistent.
This is absolutely critical when pursuing independent wealth. Putting all the risk in a handful of stocks will make you vulnerable to major losses, and you could potentially suffer a financial loss that would be difficult to bounce back from.
Components of an investment asset mix
A well-diversified investment portfolio will have a good mix of long-term and short-term investments, as well as high-risk and low-risk assets.
Stocks represent the most aggressive part of a portfolio, have the highest risk, but also the greatest opportunity for growth.
Bonds, on the other hand, are typically less volatile than stocks and can provide regular interest income. Having bonds as part of your investment mix can act as a cushion against the unpredictable movements of the stock market.
Short-term investment vehicles include money market funds and Certificates of Deposit. These both also offer greater stability than stocks. Money market funds have a high degree of liquidity and therefore, easy access to your money. This decreased risk results in lower returns. CDs are also low-risk, but your money isn’t as easily accessible.
International stocks can provide growth opportunities not offered by U.S. securities. The added exposure can result in bigger gains, but comes with higher risk.
If you want to take an aggressive approach with investing, the majority of your money (over 50%) should be in stocks. A conservative mix would consist mostly of bonds.
Dave Ramsey’s K.I.S.S. strategy
Don’t let intimidation or lack of knowledge keep you from investing your money. In fact, Dave Ramsey suggests keeping your investment mix very simple, while still minimizing risk.
Here is his recommended allocation for retirement planning, college funds, or just investing in general:
- 25% in Growth & Income Funds
- 25% in Growth Funds
- 25% in International Funds
- 25% in Aggressive Growth Stock Mutual Funds
According to Dave, there should be 90-200 stocks within each fund.
The one investment tool most millionaires use
From a survey of over 10,000 millionaires, Ramsey Solutions discovered that 8 out 10 used a 401(k) to grow their wealth.
A 401(k) is an employer-sponsored retirement savings account that comes with tax benefits and sometimes matching contributions. And, although it’s one of the most common options for Americans to build retirement savings, only 32% are using one.
If you’re not using a 401(k) as part of your independent wealth strategy, check with your employer’s HR department to see if they offer one. If they do, sign up! Try to contribute enough to take full advantage of any 401(k) match they provide.
Take calculated risks
After you’ve gotten comfortable with investing in conventional options, use your knowledge and experience to consider other opportunities.
A few alternate investments could include:
- Real Estate
- Peer-to-Peer Lending
The key to minimizing risk in these alternate investment options is to *completely* understand how the investment works and what you’re getting into.
Here are a few ways you can protect yourself from a major loss:
- Write down every question you can think of, and then do the research to answer them all completely. Be sure you could explain the investment in simple, clear language.
- Don’t risk more than 10% of your portfolio.
- If a loss would significantly impair your retirement savings, don’t do it.
- Never make a decision based on your feelings. *Always* look at the facts and weigh the pros and cons before you move forward.
11. Get married and stay married
Committing to your partner forever in marriage has its financial advantages. From greater tax breaks to lower insurance premiums to Social Security spousal benefits, being married can increase your wealth and purchasing power.
Of course, if you divorce then your overall wealth could be cut in half, and your living expenses will increase. This could result in devastating setbacks to your quest for independent wealth.
The negative consequences are even more prominent in divorces after 50 years of age. You might have to share half your retirement fund with your ex, which could create major difficulties for you. As you get older (and if you haven’t remarried), you’ll be on the hook for long-term care costs and medical bills.
Another consequence of divorce is the kids’ inheritance will come second to any new spouse your ex marries.
So, before you jump ship, consider the long-term financial effects that a divorce would have on you, your children, and even your grandchildren. If possible, overcome your differences and disputes and commit to working toward your financial goals together.
12. Start a business
When you work for someone else, you can only make as much as they’re willing to give you. But, if you’re your own boss, the sky is the limit.
You could start small and let a side business supplement your regular income. This could greatly increase your progress toward independent wealth. As your business grows, you can make greater investments in it by adding more resources and even hired help.
Both online and service businesses typically require low start-up costs, have minimal overhead, and offer high profit. Consider how you can meet someone’s needs with the experience you’ve already acquired. When you can effectively solve a problem that many people struggle with, then you have the opportunity to build a successful business.
Here are a few ideas that would be easy to start with little investment:
- Sell digital downloads
- Offer consultations in your area of expertise
- Be a freelance writer
- Help others to write resumés
- Be an ebook author
- Teach an online course
- Start a blog or podcast
- Become an affiliate marketer
Of course, you get out of it what you put into it. Turn one of your passions or skills into a business and let the income roll in, helping you achieve the level of financial freedom you desire.
13. Pay off your mortgage
Being a homeowner is a great way to increase your net worth, as you pay down the mortgage and benefit from your home’s appreciating value.
But, when you pay off the mortgage and own your home free and clear, your capacity to achieve independent wealth grows exponentially. Because your house payment is usually the largest debt you owe, you can skyrocket your savings when you apply that expense to investment vehicles that will grow with compound interest.
To pay off your mortgage faster, consider refinancing a 30-year mortgage to a 15-year mortgage. You could get it paid off in half the time, and even less if you make extra monthly payments.
14. Invest in yourself
If you want to become independently wealthy, you will need to continue to grow in skill and knowledge. Keep finding opportunities to expand your skillset so you can increase your chances to advance your career. Also, look for ways to participate in personal and career development, and strengthen your financial knowledge.
Here a few financial topics you should educate yourself in:
- Investing basics
- How to budget and balance your accounts
- How to plan for retirement
- How compound interest works
- Personal finance concepts
- How to find the right insurance
- How time and money work together
- How to leverage good debt and avoid bad debt
You are your best investment. The more you know, the better financial, career, and even personal decisions you’ll make that will affect your ability to become independently wealthy.
Unless you have a strong grasp of financial knowledge, you will always struggle with building wealth. Fortunately, it’s never been easier to become financially literate. You can subscribe to personal finance blogs (such as this one!), read books, listen to podcasts, and join Facebook groups to learn more about how money works.
But, don’t just keep your knowledge between your ears. Apply what you learn to discover what principles and strategies work best for your financial goals.
15. Give freely
In a post about becoming independently wealthy, you wouldn’t expect someone to tell you to give your money away, but it’s an important step.
The more you give, the more money comes back to you in bigger ways. It may not be money falling into your lap, but you may have more opportunities to make money or form stronger networks that turn into more money. Keep your eyes and ears open and give to what matters to you the most.
Not only is being a giver important to achieve independent wealth, being generous is necessary to have financial freedom. The only way you can avoid the fear of losing what you’ve gained is to be willing to give it away. When your hand is open to give, it’s also available to receive.
And, if you’re a person of faith, you may already believe in the principle of tithes and offerings. When your actions are aligned with your beliefs and values, you experience more peace and contentment in your life.
Misconceptions about independent wealth
Many people never attempt to pursue independent wealth because they believe it’s an impossible goal. This limiting belief can be largely attributed to the misconceptions they’ve accepted as truth.
You may think anybody with multi-millionaire status lives in a huge mansion and drives expensive cars. But, actually, most wealthy people lead average lifestyles not much different than most.
Unless you win the lottery and receive a large inheritance, anybody who achieves independent wealth does it through diligence, discipline, and determination. These traits continue even when someone has built great wealth, which means they often still live in average homes, drive used cars, and even have regular jobs.
So, just because you think you’ll never live in Beverly Hills and drive a Rolls Royce, that doesn’t mean you could never be someone who is independently wealthy. When your financial habits reflect your money values, you’ll find that your lifestyle probably won’t change much as you continue to build wealth.
The benefits of being independently wealthy
Besides feeling a great sense of accomplishment once you reach independent wealth status, there are other benefits that will enrich your life.
You can freely pursue your passions
If you have enough savings so you never have to work again, then you have all the time and money you need to focus on your true passions in life. You won’t be restricted by the responsibilities of a job, or the costs that new hobbies and pursuits may require.
You’ll have future vision
When you have financial security, you’re no longer focused on how to get through the next month. Your goals go far into the future, even beyond your own life.
You consider how you can best manage your wealth so that you create a strong financial legacy and bless future generations. You think about how your contributions to worthy causes can help make the world a better place 10, 20, even 50 years from now.
Having future vision will give you the focus to make a difference with your wealth, and continue to make wise financial decisions.
Your mental and physical health will improve
Being in deep debt and living paycheck to paycheck can create immense financial stress. Excessive worry and anxiety can lead to physical ailments like weight gain, heart disease, poor sleeping habits, and diabetes.
Of course, you don’t have to achieve independent wealth to experience less stress and more peace. But, the stronger and more secure your financial situation, the more your health will benefit.
Also, if you don’t have to work to support yourself, you’ll have the time to take care of yourself through self-care habits and exercise. You’ll also have the money to buy organic foods and afford to maintain a healthy diet without having to buy the cheap, processed options.
Poor mental and physical health can cloud your judgment and lead to financial decisions that can keep you stuck instead of moving your forward. Do what you can now to take care of yourself as you pursue independent wealth.
The downside of pursuing independent wealth
Being rich doesn’t have a lot of disadvantages (besides higher taxes), but building wealth is a long journey with many ups and downs. You’ll experience great successes, as well as endure great sacrifices.
Delaying gratification and denying certain pleasures are just two important decisions you’ll need to make as you pay off debt, increase income, and build your savings. You’ll see your friends and co-workers go on summer vacations, drive new cars, and move to bigger houses in nicer neighborhoods. This can be difficult to resist, especially if you make enough money to buy those things, too.
You might miss out on going to some school plays, basketball games, and company parties because you’re working your side gig. You may not be able to spend as much time with your spouse and kids. Your social life will probably suffer, and you may even lose some friends because you don’t have the time or energy to keep up the relationships.
Having balance is healthy, but pursuing independent wealth will require much effort and sacrifice on your part. You’ll need to decide if those sacrifices are worth the benefits.
Final thoughts on becoming independently wealthy
Building great wealth is possible for anyone who is willing to put in the work, make the sacrifices, and stay focused on the long-term. You just have to determine for yourself if it’s worth it.
Just be clear you know why you want to be independently wealthy. If you don’t have a higher cause than just being rich, you will probably lose steam before you reach your goal.
Have a vision, set some goals, and take action. If you’re starting late in life, be willing to make some major sacrifices. You must be patient and focused. In time, your wealth will grow and you’ll experience greater financial security.
Whether you eventually achieve the status of independent wealth or not, you’ll be in a stronger financial position than you are now. And that will make it all worth it.
Other posts you may enjoy:
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