Financial Independence: It's More Achievable Than You Think

You may be just a few steps away from gaining financial independence.

Feb 12, 2014 at 2:00PM

Many of us may dream of financial independence, but many also just assume that it's out of reach. That's not a helpful outlook, though, because most people can significantly improve their financial condition, and very possibly achieve financial independence, as well.

Let's define terms first, though, because "financial independence" means different things to different people. A common definition is having enough money to not have to work. You might also define it, though, as being financially healthy, living comfortably, and being on track to secure a comfortable retirement. Thus, you might still have to work and save, but you're not relying on financial help from others, such as your parents, government programs, or credit card lenders.

Here are milestones on the path to financial independence:

  • You have an emergency fund, with money accessible in case you need it.
  • You're debt free, with even your home paid for.
  • You have various income streams, sufficient to support your expenses.
  • Your income streams will last for the rest of your life.
  • If you're working, it's only because you enjoy it and want to.

Steps you can take
So how do you reach such a state of financial nirvana? You might look at your income, which is rather fixed from year to year (aside from any raises you get), and your spending, and conclude that there just isn't enough room to make much of a difference in your financial condition. You're probably wrong there. Here are some actions you could consider. You may be unable or unwilling to do all of them, but just a few could make a meaningful difference.

  1. Boost your income: This is easier said than done, but in most cases, it can be done. You might find a better-paying job, for example, even if it means a little more schooling. You might take on a second job, too -- if only for a while. One year of earning an extra $200 per week amounts to more than $10,000 that can help dig you out of debt, or jump-start your savings.
  2. Reduce your spending: Living at least somewhat frugally is critical to achieving financial independence. You might eliminate some of your expenses, such as that venti Java Chip Frappuccino. A daily $4 drink costs you $1,460 per year. If you smoke a pack a day and can quit, you might save $2,500 per year (and add a few years to your life, as well). Many cutbacks can be relatively painless, too, such as dropping your cable TV subscription (or just the costly premium channels) and subscribing to an inexpensive streaming service instead. You might simply negotiate some lower rates by calling parties like your cable provider or credit card lender and asking to pay less. Shopping around can yield some surprising savings -- the advent of Obamacare, for example, might deliver some health care savings.
  3. Have a plan: Are you deep in debt? Make a plan to get out of it, detailing how much you'll pay off by certain dates. Draw up a retirement plan, too, determining how much you need to amass by retirement and what income you can expect in your golden days. Your days of financial independence, for example, might be supported by $20,000 annually from Social Security, $10,000 from dividends, $15,000 from a pension, and perhaps $15,000 from an annuity. Assess your investments now and make sure that you're investing effectively as you take on a reasonable amount of risk. 

Financial independence is achievable for many of us, either before or during retirement. No matter how unprepared you may think you are, there are always things you can do to improve your situation. Just working a few more years before retiring can make a huge difference.

If you really aspire to financial independence, decide what you'll do to get there.

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Selena Maranjian, whom you can follow on Twitterhas no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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