Do you feel like you are working as hard as you can and are not making any progress despite your best efforts? Many people spend the better part of their waking hours on the job, and their income is almost entirely consumed by bills that help them maintain the status quo. If you can relate to this, you understandably feel frustrated. You eventually want to get to a point where you can stop working and actually enjoy life on your own terms.
This may seem like a pipe dream, but the reality is that you can make it happen. Regardless of where you are at financially today, you can walk through a few important steps so that you can make steady progress toward achieving financial independence.
Scale Down Your Lifestyle
When you are breaking even each month, you have two choices to break the cycle. You could earn more money, or you could spend less money. Spending even more time and energy working for someone else is not ideal, so the reasonable solution is to scale down your lifestyle. This can seem painful initially, but you will get accustomed to living without some of the extras that you are paying for today.
You can begin with small steps, such as skipping your morning stop at the corner coffee shop and limiting unnecessary clothes shopping trips. The best way to scale down your lifestyle, however, is to make changes that result in regular savings without conscious effort.
For example, you can get a cheaper smartphone plan, transition into a more affordable car and move into a smaller home. You may be able to save a few hundred dollars or more each month through these and other similar efforts.
What do you do with the extra money that you free up from adjusting your lifestyle? Initially, you should focus on eliminating debts. Your debts cost you money each month in the form of interest charges. If you add up the interest charges on all of your credit card and loan statements, you will see the true cost of carrying these debts.
This is wasted money that you could be saving or using in other beneficial ways when the debts are paid off. Stop taking on more debt immediately, and create a debt elimination plan. Concentrate on one debt at a time. To do this, you will make the minimum payments required on all other debts, and all remaining funds will be applied to the debt that you are focusing on. Once that debt is paid off, move on to the next account. Repeat this process until all of your debts are eliminated.
As you progress through your debt elimination plan, you will notice that you have an increasing amount of money available for debt reduction each month. You simply have to push hard right now to get the wheels in motion, and you will see incredible progress in the months ahead.
Set Up Passive Income Streams
It may take you several years to completely pass through the previous steps. Some people will wait until these steps are completed before moving on to the third step, and others will use available assets to work on this step while paying off debts and reducing spending. This next step involves learning how to make passive income.
After you have reduced spending and eliminated debts, you may be surprised by how little money it takes to support yourself on a monthly basis. Consider that you only need to pay for utilities, insurance, food and a few other essentials. Because you will still have expenses, you must still have income available to pay for them. You may also want to generate additional income so that you can afford to live the type of life that you want. True financial independence comes when you generate enough income to support yourself without having to actively work for that income.
These are some of the more common sources of passive income that you can consider:
- Rental property income
- Peer-to-peer lending
- A bond ladder
In order to achieve your goal of financial independence, you need to develop a feasible plan. Now that you understand what it takes to break the frustrating cycle that you are currently in, you can create your plan today.