During the first month of the year, most people are busy setting goals and making resolutions. Personal finance is one of the most popular goal categories and it makes sense because money is something you have to manage each day.
For some, the end goal may be financial independence. This means reaching a point where you no longer need to work to bring in an income and you can live off your assets.
If you don’t want to work forever and never have the option to retire, you’re not alone. Many of us want financial independence ultimately but there are often things holding us back from reaching that point.
If you find it difficult to determine how you can live your dream lifestyle and make working optional, one or more of these 5 things that could be preventing you from reaching financial independence.
1. Behind on Savings
One of the key things you need to become financially independent is enough savings to support your lifestyle. Ideally, you’ll want a healthy emergency fund, plenty of retirement savings, and perhaps other investments and sources of income like real estate or an annuity.
The problem is that most Americans are behind on their savings and don’t even have enough to cover a $500 emergency. It can be difficult to think about retirement savings when you’re young, but it’s crucial that you do.
The earlier you start saving for the future, the more time you’ll allow compound interest to grow your investments. Get into the habit of paying yourself first. Start by saving a small percentage of your income that isn’t intimidating.
No amount is too small, even just 1% of what you bring home. The idea is to create a healthy savings habit. Over time, you can increase your savings rate when setting money aside becomes second nature.
Another fun way to start saving is to join a 52-week savings challenge. This is something I’m doing this year and it prompts you to set aside money each week. By the end of the year by week 52, I’ll have a sizeable balance saved.
2. Not Paying Down Consumer Debt
Holding onto consumer debt will slow you down from reaching any financial goal. However, if you remain in debt, you’ll likely never become financially independent.
I don’t know anyone who is financial independent and still have consumer debt. Isn’t that like an oxymoron anyway?
Debt is expensive because you have to pay interest on your balances. This means, you’ll have less money to save and prepare for financial independence.
Even minimum payments can push your expenses over the edge. Start paying off all debt that isn’t a mortgage to free up your budget and income.
You start with high interest debt like car loans and credit cards. Then move to low cost interest debt like student loans and medical debt.
I find It’s best to focus on one type of debt at a time. After you knock balances out one by one, you’ll get closer to your goal of becoming financially independent.
3. Constantly Comparing Yourself to Others
Comparison is the thief of joy. It can also steal quite a bit from your wallet as well. Today’s digital society often takes the phrase ‘keeping up with the Joneses’ to a whole new level.
It’s so easy to get caught up in the comparison game. Social media alone can be super influential. Maybe you see someone you know go on a fun vacation or you see that someone else has paid off their debt.
You may start to compare yourself or even adopt some of their same lifestyle choices but trust me it’s not worth it. Comparing yourself to other people can distract you from staying the course and working toward your ultimate goal – financial freedom.
Instead of trying to keep up with other people, get clear on your goals and action plan, take social media detoxes from time to time, and keep telling yourself that everyone’s situation and circumstances are different.
4. Giving In to Lifestyle Inflation
Do you increase your expenses whenever you get a raise? Inflating your lifestyle every time your income increases will often slow down your journey to become financially independent.
It’s the same with comparing yourself to other people. It’s unfortunate, but most people either don’t become financially independent in their lifetime or it takes them an extremely long time to get there.
Knowing this, why would you try to live like other people and inflate your lifestyle? Find ways to lower your expenses and reign in your budget until you get comfortable.
Then every time your income increases, just keep maintaining your current lifestyle and put the money to work by investing it in your goal of financial independence.
5. Lack of Clarity
Have no clarity on your goals or plan to become financially independent can lead to major setbacks. It’s important to be honest with yourself about what you truly want.
What does financial freedom mean to you? When do you want to achieve it? What will your life look like at that time? How much money will you need? How will you come up with that money?
Carefully consider your answers to all of these questions and form a plan so you don’t have to worry about getting off track and having no clarity.
Remember, financial independence means something different for everyone. For me, it means vacationing a lot, spending time on more creative projects, and living off my investments and rental properties. For my husband’s grandmother, it meant working in the bar she owned until her 90s simply because she enjoyed it – not because she needed the money.
Gain clarity and write your own story.
For now, financial independence may seem like a distant dream, but it will become a reality so long as these 5 factors are not holding you back.
Have you ever thought about what it would take for you to become financially independent? Are any of these things holding you back?