How to Become Financially Independent (FI)

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Envision your life 20 years from now. Where do you see yourself? More importantly, where do you WANT to be, and WHO do you want to be?

These are great questions to start asking yourself early on in life because what you choose to do in this current period of your life will greatly impact where you will be in the future.

The content you choose to read, the content you choose to watch, the education you decide to receive or not receive, the jobs you take and the way you spend your money will all influence where you will be 20 years from now

So, I would describe being financially independent (FI) as being able to take care of yourself financially, not live paycheck to paycheck, and have enough income to support yourself for the rest of your life. You don’t rely on anyone, and you have different sources of income that contribute to your wealth.

I am on the path to financial independence and it is a long journey but these are the steps I am taking now in my early twenties so later I can live not worried about finances.

What you can do to become FI

  1. Studying a field that has a very good return on investment (ROI). Studying a field that the likelihood of finding a job is close to 100%. Studying a field that pays very high right outside of graduation.

I am getting a B.A. in accounting with a minor in Russian. My educational journey is longer than the standard four years but its because I am adding value to my degree by minoring in a foreign language.

I am a career advisor by day, and the most common struggle I see students face is choosing their major. They feel like they have to decide between doing something they love, and something that they don’t love that will “make them money”. Well, there is no rule to what degree you should do, but understand this principle I am going to share with you.

A college degree, regardless of the major, is ONLY a good investment when it will make you more money after you graduate that you wouldn’t be able to earn without the degree. If you go to school and pay $70,000 for a degree, and land a job that pays $30,000, I hate to say it but that is a bad investment. I won’t tell you what degree to choose, but I will say this, if the degree is something you both like, and it will make you money when you graduate it is a good choice.

Do your research. As a career advisor the top 3 things we look at are: 1. What jobs can you get with a degree in ____? 2. How much does this job pay? 3. Is this a growing field & in demand? These are the most important things you need to know, so do your research before choosing your major.

I am majoring accounting and plan to become an accountant. This pays on average around $50,000-60,000. Accounting is in demand and every single business needs an accountant. I have done my research, have you done yours?

A college degree is not the only way people become FI. Many famous people didn’t go to college and still became wealthy. It is just a safe investment. Choose wisely. Know what career you want to be in. Don’t go to school until you know what you want to do. Go to your local career center on campus and they will help you.

2. Don’t go into debt.

The reason wealthy people are wealthy is because they are not in debt. Don’t spend money you don’t have. Don’t use a credit card when you aren’t able to pay it off by the due date.

But Dana, you say go to school and don’t go in debt.. how do you do that? This is what I did; work full time while in school, start at a community college, and enroll in their payment plan. No one helped me pay for school. Per term was about $1,700 at PCC. I took three classes per term because that is all I can manage while working full time. They had a three or five way payment plan so I usually did the five way plan. $1,700/5 = $340 once a month. If you keep your expenses low, and work full time, this is easy to do. Start at a community college. It is SO much cheaper for the EXACT same classes you’d take your first two years at a university.

Besides working full time, apply for scholarships and grants. Grants & scholarships you do not have to pay back. I didn’t take a single loan my entire time at PCC. Graduated debt free. Now I am at PSU, cash flowing my way through it. You can too.

3. Start saving & investing TODAY

My current investments 6/28/20

If you are in debt, pay that off first, and then start saving. Keep an emergency fund but it is essential you get out of debt asap. Your debt will hold you back from saving. Set up a basic savings account, a Roth IRA or a traditional IRA. Or see if your employer offers any retirement plans.

The earlier you start investing, the better return you will get. Your portfolio (stocks/bonds/ETFs) will grow in value and one day it will be paying you back massive dividends because you started investing early!

I just have a Roth IRA with Vanguard at the moment, since my employer does not have retirement plans for student employees. I love it because my money grows tax free. There is also no minimum balance to open one up.

Why else should you invest? Per year on average the return rate is 10%. Compare that to .01% with many basic savings accounts. I have been investing for four months and already have watched my money grow $48. While my basic savings account has grown by $0.01 cent. Not only that, many companies pay you dividends quarterly or annually so your money is making money.

4. Read the book Quit Like a Millionaire

Sometimes it helps to read a success story that inspires you to take action. This book is by far my absolute favorite book. It was so inspiring and informative. The book is about $10.25 but the value you get from it is priceless. Ever since I read this book, I opened up a Roth IRA with Vanguard and started investing on Robinhood.

5. Get on a budget

Seriously, if you can’t manage $1,000, how will you manage $10,000? If you learn to manage your money and live on less than you make or make more than you spend, you will be at a good starting point. Use one of my budget templates! Try it out to get started.

6. Calculate your FI/RE number

To calculate this, take your annual expenses and divide that number by 4%. This is called the 4% rule. For example, let’s say your annual expenses are $40,000 ($3,333 per month), this would amount to $1,000,000 under the 4% rule. This means you need $1,000,000 saved up so you could afford your annual expenses while retired if you withdraw only 4% annually.

Conclusion:

To work towards FI you must:

  1. Study something that has a good ROI (return on investment)
  2. Don’t go in to debt, & get out of debt
  3. Start saving & investing
  4. Read Quit Like a Millionaire
  5. Budget your money
  6. Calculate your FI/RE number

This is what I am doing and I am on the path to FI. The fact you are reading this shows you have the drive to become FI. I believe in you.

Published by Dana Johnson

Hi, my name is Dana and I help teach the value of budgeting & saving early on in life so you can achieve your financial goals.

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