How to Become Financially Independent: 7 Proven Strategies

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the millennial money woman blog post "How to Become Financially Independent"

Becoming financially independent is a goal that many people share.

In fact, 47% of young Millennials expect to become financially independent between ages 21 to 25.

47% of Millennials expect to be financially independent between ages 21 to 25

Source: TD Ameritrade

Especially after COVID-19, it is no secret that more and more people are looking for ways to:

The good news is that you can start your financial independence plan today with my 7 proven strategies. 

Let’s dive right in.

In this article

What Does Financial Independence Mean? 


Financial independence is when you have enough money saved and invested to support your basic living expenses for the rest of your life – without having to work for a living. Achieving financial independence is when you’re able to do whatever you want without worrying about money.

Below are a few real-life examples of financial independence:

Situation Action

You don’t like your boss at work

Quit

You want to learn something new

Enroll in a class

You want to visit all 7 continents

Hop on the next flight

As you can see, achieving financial independence could be synonymous with freedom:

You have the choice to do whatever you want to do – without worrying about how money could impact your plans.

Financial independence could be split into 3 main categories:

  • FIRE
  • Fat FIRE
  • Lean FIRE

Here is a brief example of what each FIRE movement means:

FIRE Movement Definition

FIRE

You’re not spending money on things that don’t matter both during pre-retirement and post-retirement.

You’ll typically want to save between $1 million and $2 million in assets.

Fat FIRE

Living on a large budget both pre-retirement and post-retirement.

You’ll typically want to save around $2 million+ in assets.

Lean FIRE

Living on a small budget both pre-retirement and post-retirement.

You’ll typically want to save a maximum of $1 million or less in assets.

Now, take a look at the chart below:

Net Wealth Target to Hit Financial Independence

As you can see, the amount of money you need to save to become financially independent totally depends on your lifestyle choices.

However, most people who have joined the FIRE movement would prefer to retire later in life and live more comfortably than retiring earlier and living on less.

Fat FIRE vs Lean FIRE

Most people aiming to join the FIRE movement, are looking to retire early with assets between $500,000 to $2MM in net worth.

The average Financial Independence number is between 500000 to 2 million in net worth

Ultimately, the younger you are when you start investing, the more likely you’ll achieve financial independence early on.

How to Become Financially Independent


Now that you know the definition of financial independence, let’s take a look at the steps you need to take that to become financially independent.

Ignore the Joneses

1. Ignore the Joneses


Keeping up with the Joneses is a losing battle. 

The proverbial “Joneses” is the family that:

  • Drives the latest cars
  • Lives in the biggest home
  • Takes the nicest vacations
  • Buys the hottest tech gadgets

Stop competing and stop trying to buy the most expensive items. 

Achieving financial independence has to do with spending less than you earn.

One of the fastest ways to fight the “Jones Syndrome” is to create a budget.

A budget is a millionaire planning tool.

Budgets help make your dream life a reality.

Budgets are awesome planning tools because:

  • They help you accomplish your goals
  • They shed light on your spending habits
  • They improve your money management
  • They help you gain control of your money

One of the highest-rated budgeting tools is known as YNAB (aka You Need A Budget) 👇

YNAB is software that’s 100% dedicated to your budget and was actually developed by a CPA (a Certified Public Accountant) for his new family to stay on track with spending. 

The YNAB app has become so successful, that it’s helped new YNABers save on average:

  • $600 in their first 2 months
  • $6,000 in their first year

Take a look at my comprehensive YNAB Review to learn more about the budgeting app.

When you stop competing with the Joneses, you’ll be the winner.

Increase Your Savings Rate

2. Increase Your Savings Rate


An important lesson that I’ve learned is that income does not equal wealth.

Income does not equal wealth.

In fact, I’ve met a couple (a lawyer and his wife) who earn $900,000 per year, are in their late 60’s, and they will have to work for the rest of their lives because they have saved only $100,000 over their lifetime.

On the other hand, I’ve seen assistants earning $50,000 a year who managed to save and invest over $200,000 in just a few years.

To become financially independent, you need to increase your savings rate.

In this case, the average rule of thumb is to save between 10% to 20% of income.

If you want to achieve financial independence, you should aim to save at minimum 50% or more of your income.

In fact, if your savings rate is 50%+, studies suggest that you’re more likely than other groups to become financially independent.

If your savings rate is 50 youre more likely than other groups to achieve financial independence

I’m saving (and investing) just over 70% of my income – and I still feel like I can be doing a better job by increasing my savings rate to 80%.

You’ll want to keep about 3 to 6 months’ worth of living expenses in cash in an emergency savings fund like Axos Bank 👇

Axos Bank offers a high-yield savings account, with no monthly maintenance fees and interest rates that are more than 6X higher than the national average.

Increase Your Monthly Income

3. Increase Your Monthly Income


You can save as much as you want, but at some point, you just won’t be able to save more money because you still need to pay for basic living expenses. 

How much you can save is limited. How much you can earn is unlimited.

In this case, you’ll want to make more money.

Of course, you could always ask for a pay raise on your job… or you could also consider starting a side hustle.

Side hustles, especially after the COVID-19 pandemic, have peaked in popularity. 

In fact, just over 1 in 3 Americans have a side hustle.

1 in 3 Americans have a side hustle

Source: Zapier

Not surprisingly, 31% of side hustlers started their extra gig in 2020.

What’s even better is that 61.1 million Americans plan to start a side hustle in 2021.

31 percent of all side hustlers started in 2020

A recent survey shares that the average side hustle brings in about $1,122 per month.

Of the survey respondents making over $100 every month:

Side Hustle Statistics 2021

As you can see from the statistics above, achieving financial independence can be made a reality if you consider starting a side hustle.

Below I’ve compiled a list of side hustles for you:

Side Hustle Potential Monthly Income

Blogging

$1,000+

Twitter Affiliate Marketer

$1,000+

Selling eBooks

$500+

Food Delivery

$600+

Online Surveys

$50+

Note that while there are some very lucrative side hustle businesses (like blogging or affiliate marketing), you’re probably not going to start earning $1,000+ in month 1.

These side hustles take a lot of time to build up before they start making money.

And that’s totally ok.

Make sure you pursue a side hustle because you enjoy it – and not just because of the money.

Live a Lean Life

4. Live a Lean Life


Becoming financially independent means you’ll probably have to sacrifice some of your daily luxuries.

If you’re looking to join the FIRE movement, you should start practicing frugal living habits and consider cutting out expenditures like: 

  • Eating out
  • Buying the latest gadgets
  • Traveling to hot vacation spots
  • Spending money on high-interest debt

FIRE early retirement is not all roses and butterflies. 

In fact, you’ll have to trim the fat and likely live a lean lifestyle.

Although most subscriptions typically don’t cost $100’s, the small, recurring charges can make a significant impact on your wallet at the end of the year.

In fact, forgotten subscriptions could cost you over $1,100 per year.

Forgotten subscriptions could cost you over $1,100 per year.

Source: Insider

The good news is that you can hire a service, known as Truebill, which will negotiate subscription costs on your behalf to a lower price.

The only time you pay is if Truebill successfully lowers your subscription expenses.

Below are some additional steps you can take to achieve financial independence:

Remember that the earlier you start pursuing your FIRE goals, the better off you’ll be in the future.