If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.
by Christy Bieber | Updated July 21, 2021 - First published on Dec. 16, 2019
Many or all of the products here are from our partners that pay us a commission. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
Ideally everybody should get closer to financial independence with every year that passes. Here's how you can tell if you made progress on this goal in 2019.
Most of us work for wages and need money from a job to pay for necessities such as food and shelter. However, we can't work forever, so eventually we need to become financially independent.
Financial independence means you have enough money from investments and savings to cover your living expenses so you no longer need to work. While financial independence is necessary to retire and can enable retirement, it doesn't have to. Many people who are financially independent choose to keep working, especially if they reach independence while they are still young.
Becoming financially independent takes time and requires making responsible choices. It's something most of us will work towards during our whole life, although those who save aggressively may reach this milestone much earlier. And ideally it's something that you'll make progress towards each year.
So did you get closer to financial independence in 2019? Here's how to tell.
There are two ways to get closer to financial independence: cut expenses or increase assets.
Find the best stock broker for you among these top picks. Whether you're looking for a special sign-up offer, outstanding customer support, $0 commissions, intuitive mobile apps, or more, you'll find a stock broker to fit your trading needs.
You can figure out how much you need in order to be financially independent by adding up all the expenses you need to pay. This is the amount you'll need to bring in without a salary. This could be rental income from properties you own, or interest from savings accounts, or money from investment returns.
If your goal is to become financially independent, the next step is to figure how much passive income all of these assets produce. You've achieved financial independence when your assets will consistently produce enough income to cover your expenses for the rest of your life.
You can see if you made progress towards this goal by looking at what you did with your money over the year and seeing how it affected your efforts. If you paid down debt, didn't take on any new obligations, and invested money in a retirement account or taxable brokerage account, then you got closer to financial independence.
You can easily measure how well you did at increasing assets and decreasing obligations by calculating your net worth and tracking it over time.
Your net worth is the value of everything you own minus your liabilities. You can calculate it by adding up the value of assets such as real estate, investment accounts, and personal property and then subtracting all of your debts. If you own a house and other property worth $200,000, have $50,000 in an investment account, and owe a total of $195,000, then your net worth would be $55,000. The higher your net worth, the closer you are to financial independence.
If you haven't ever calculated your net worth in the past, calculating it now will give you a good baseline so you can monitor changes and see your progress in future years.
If you didn't make great strides towards financial independence in 2019, you can do better in 2020. You'll want to set some clear financial goals for yourself. For example, you could:
Once you’ve chosen one of our top-rated brokers, you need to make sure you’re buying the right stocks. We think there’s no better place to start than with Stock Advisor, the flagship stock-picking service of our company, The Motley Fool. You’ll get two new stock picks every month, plus 10 starter stocks and best buys now. Over the past 17 years, Stock Advisor’s average stock pick has seen a 632% return — more than 4x that of the S&P 500! (as of 1/05/2022). Learn more and get started today with a special new member discount.
If you're proactive in making investments and reducing liabilities, you'll end the year a whole lot closer to financial freedom.
No one can work forever, so becoming financially independent eventually is essential. Ideally, you'll work towards financial independence every year and achieve this goal as soon as possible. That way, you'll be able to work because you want to, not because you have to. Financial independence means you'll have a lot more freedom to do things you're passionate about instead of just working because you need a paycheck.
Over the long term, there's been no better way to grow your wealth than investing in the stock market. But using the wrong broker could make a big dent in your investing returns. Our experts have ranked and reviewed the top online stock brokers - simply click here to see the results and learn how to take advantage of the free trades and cash bonuses that our top-rated brokers are offering.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2022 The Ascent. All rights reserved.