Financial Independence (FI) means having enough income to pay for your expenses for the rest of your life – without relying on a 9-to-5 job. A financially independent person generally lives on the income generated from investments. In this article, we will cover the six basic steps for how to become financially independent in 5 years or less.
Five years is a very short amount of time to achieve financial independence. That said, if your finances are already in a good place, it’s certainly not impossible or unheard of.
1. Examine Your Finances in Detail
In order to reach FI, you need to spend less than you make. You’ll need to know exactly what you are earning and what you are spending. Take time to examine your finances in detail. Create a way to track expenses and review your spending.
2. Work to Pay Off Debt
In order to find financial freedom in 5 years, you’ll need to get rid of your consumer debt. This means paying off student loans, credit card debt, and even your car loan. By paying off debt, you’ll reduce your monthly expenses while freeing up funds to save for financial independence.
3. Cut Your Expenses
Since you’re working in an accelerated time frame to reach FI, it’s wise to cut certain expenses so you can save (or invest) even more money. Start small by cutting out impulse buys and subscriptions you don’t use. Then, work your way toward cutting down on the major expenses like groceries, bills, and even housing costs.
4. Increase Your Income
Saving and investing enough money for financial independence likely won’t happen just from cutting expenses and living a frugal life. You should consider ways you can increase your income in these 5 years to financial independence. This could look like a second job, starting a side hustle, or asking for a raise at your current job.
Source: https://investinganswers.com
