Financial independence is a state in your finances where your investments generate more value than your expenses take out. To some, it may mean you do not need to do much work any more and to others, your financial obligations are manageable. 

Young people understand it as not having to depend on their parents for money anymore. However, we all have a common goal when it comes to financial independence. The goal is to achieve financial freedom before we retire and to use it to ride out our retirement. 

The goal will drive us all to one question, ‘How do I become financially independent before I retire?’

This article will guide you through the various ways you need to take to become financially independent.

 1. Spend Less Than You Make

Spending less than you earn is our first step because it is very challenging for most people. Spend less and Save more is one of the most common new year’s goals.  However, most people have a hard time actualizing it. 

You need to understand that it is a repeat process and more of a habit. It is the core strategy that drives other financial habits that guarantee financial independence. How do you learn to spend less than you make

a. Evaluate Your Financial Habits

You can easily expand your income and wonder where it all went. Track how and where you spend your money. You can easily track your expenditure using a pen and a notebook. 

Technology and the internet have also made it easier to track your expenditure using online money management tools, most of which are free. 

Once you know where your money goes, you will have an easy time to cut expenses and save more, which leads you to financial freedom. 

b. Make a Budget

You now know where you have been spending your money on. You will need to make a budget to responsibly direct your finances. A budget will help you note the recurring expenses and variable expenses and how you can apportion to each. 

An excellent example of recurring and variable costs include groceries, gas, entertainment, and travel. 

c. Draw a Fine Line Between Your Needs and Wants

It would be best if you did this as you make your budget, but you also need to look at it separately. Food, shelter, and clothing are your needs. 

Every other element of your expenditure is a want. Examples of wants include Netflix, cable TV, two cars, dining at restaurants, among others. Your wants are what mostly drive you to spend more than you make. 

d. Build an Emergency fund

How does an emergency fund help you spend less than you earn? You will encounter unexpected but necessary expenses. You will rely on the emergency fund to cater for such costs rather than your income.

 As a result, you will still be able to confine your expenditure within your earnings. You can start with a small emergency fund of let’s say $1000. As you work to follow your budget, you will be able to graduate to a fully-funded emergency fund.

e. Discipline Yourself

Remember when you made that resolution to spend less than you earn? When you are radical, you will put your foot down to eliminate temptations and exercise discipline and self-control. 

For example, if credit cards are getting you into more debt, you can have the discipline and self-control to avoid using them or getting someone trustworthy to keep them for you. 

2. Eliminate And Avoid Bad Debt

Debts are a significant drag on your way to financial independence. Furthermore, they have the potential to build or ruin your credit score which you may need to use for mortgages, emergency or business loans. 

Debts are common and almost unavoidable. However, you need to ensure they do not mature to become bad debts. 

a. Understand What Bad Debt Is

Bad debt is considered by a business or lender as a debt that is deemed to be uncollectible. Which means that as a debtor, you will not pay. 

If a lender considers your debt as a bad debt, your credit score will take a major hit, and other lenders will have a hard time lending you money. 

You can even register a bad debt from a family lender or a friend, and this will ruin your relationship with them. 

b. Plan To Pay Off Your Debts With The Highest Interest Rates First

If you have more than two credit cards, one of the fastest ways to pay off the debt is to start to pay off the one that charges the highest interest. This method is otherwise known as the avalanche method. 

Start by creating a table for your credit card debt/ debt. Look at the tables below to understand the avalanche method better.

Table 1: 

Credit Card/CreditorAmount BalanceInterest 

Table 2:

Credit Card/CreditorAmount BalanceInterest 

Once you clear the debt on card/Creditor B, you will proceed to pay off A and finish with C, who charges the lowest interest. 

However, it does not mean that you focus all your debt payments to one creditor. Such an action would still affect your credit score negatively. For credit card A and C, you will make the minimum payments while for a credit card, B gets the rest of the debt allocation. 

Let’s say you have allocated $1000 per month to pay off your debts. Your monthly payment table should represent the one below. 

Credit Card/CreditorAmount BalanceInterest Monthly Payment

When credit card B has been paid off, the payment initially allocated to the creditor should be delegated to credit card A. Look at the table below: 

Credit Card/CreditorAmount BalanceInterest Monthly Payment
A$2,00020%$200+ $600 ($800)

c. Look For Ways to Get Your Student Loan Forgiven

There are some terms you need to familiarize yourself with when it comes to student loans. They are forgiveness, cancellation, and discharge. Forgiveness and cancellation have similar meanings. It is a state where you do not need to pay it off anymore because of your job. 

Student Debt Stock Photo High Quality

Discharge, on the other hand, means your payments are no longer required because of different circumstances. You may get a discharge because of the closure of the school you received your loans or permanent disability. 

How Can I Get My Student Loan Forgiven?

  • Income-Driven Forgiveness

You can enroll in either of the four income-driven student loan repayment plans prepared by the federal government. These plans will open more doors to your student loan forgiveness. A percentage of your monthly income is delegated to the student loan repayment. 

You could earn the loan forgiveness after 20-25 years. However, it depends on the plan you pick. If you have a large loan balance, you should opt for either of these loan repayments. 

  • Public Service Loan Forgiveness (PSLF)

Qualifying non-profit organizations and government employees are eligible for this type of loan forgiveness. After you make 120 qualifying loan repayments, you will qualify for the public service loan forgiveness

For you to benefit from the PSLF, you will need to have one of the income-driven plans rather than a standard plan. For an approved plan, you will have paid off the entire loan before you can be under consideration for loan forgiveness. 

  • Teacher Loan Forgiveness

Are you a teacher working in a low income public elementary or high school? First, you will need to be fully employed at the institution to be eligible for the Teacher loan forgiveness. You will also need to have been in a job for five consecutive years. 

Furthermore, you will need to have applied and received the loan after 1st October 1998. Up to $17,500 of your Stafford or federal student loan will be forgiven.

  • Nurses Student Loan Forgiveness 

As a nurse with a student loan, you have multiple options to get loan forgiveness. Some include the Perkins loan cancellation, Nurse Corps Loan Repayment Program, and the Public Service loan forgiveness. 

85% of your student loan will be paid for you if you enroll in the Nurse Corps Loan Repayment Program, and this makes it very competitive. The Public Service Loan Forgiveness is the most common among nurses.

  • Military Student Loan Forgiveness

The Army, Air Force, Navy, Coast Guard, and National Guard offer loan repayment programs for military personnel. For example, if you are a qualifying soldier or officer in the National Guard, you could receive up to $50,000 to pay off your student loans. 

3. Look To Grow Your Net Worth

According to the book The Boglehead’s Guide to Investing people often have two mentalities when approaching their finance. There is a person with a net worth mentality and one with a paycheck mentality.  

A net worth increase for this statistical data report.

The former (net worth mentality) will look to increase their income and use savings and investing strategies to build wealth. The latter (paycheck mentality) is a category of people whose primary focus is just growing their income. 

There is a fine line between wealth and income. Wealth is how much you keep, and income is how much you make. This brings us to the definition of Net worth. 

Your net worth is the sum of the value of what you own, for example, your house or business, minus your current liabilities, for example, your mortgage or your credit card debt. 

How can you Grow Your Net Worth? 

a. Look at Your Liabilities

Your liabilities are also your debts. You can easily point out your liabilities as they include your debts, the credit card debts, mortgages, and so on. Your net worth is the difference between your assets and your liabilities.

Try and settle these liabilities from the highest to the lowest as we discussed earlier. You will be motivated to clear the rest of your liabilities once you clear the largest balance. You can consider refinancing, for example, to help you clear the ones with the highest balance.  

b. Review Your Assets

Assets are a little harder to evaluate. However, you can still do it by getting an estimated value. Assets are usually categorized into various classes which include:

  1. Primary Residence. You can use equity to tell your net worth. Equity is defined as the estimated value of your home minus your mortgage balance. 
  2. Rental Property and Vacation Home.These are considered to be investment properties. You can also use the equity formula to estimate their value. 
  3. Investments. Some of these include mutual funds, tax-  retirement plans, stocks, and bonds. What you pay as tax for these investments should fall under liabilities. 
  4. Collectibles. Examples include cars, jewelry, art, antiques, and fine wines. It would be best if you relied on an appraiser to help you estimate the value of your collectibles. 

c. Cut Your Expenses

Remember, your goal is to spend less than you earn. We will discuss how to trim your expenses below. 

d. Pay Off Your Mortgage and Any Other Debts

Mortgages are among the most substantial forms of debt. Ensure you pay them off quickly, if possible make bi-weekly payments. However, ensure that fast payments do not earn you a penalty from your lender. 

Confirm with them if it is okay to make prepayments on the agreed schedule. 

e. Review Your Annual Costs

Analyze your health premiums or insurance costs. Can you get better rates? If yes, go for the lower rates to be able to minimize your expenses and increase your net worth. 

f. Invest Your Income  

The net worth mentality we discussed above will help you grow your net worth quickly. Your financial freedom may not last if you rely solely on your income. 

4. Evaluate Your Expenses and Cut Them

You will be able to increase your net worth and attain financial freedom faster when you regulate your expenses. Here are the areas you can be able to spend less:

a. Transportation

The transport sector of your budget has a lot of room to cut costs. Look at some of the best practices below. 

  • Walk more often

A National Household Travel Survey reveals that you people like to drive even when the distance is under a mile. However, if you walk, it would take you just 15 minutes, and it would save you gas mileage on your car, and you would preserve your health. 

  • Choose a Two-wheeler Over a Four-wheeler

An automobile is more expensive to run as compared to a scooter, motorcycle, or bicycle. Cycling especially also helps you to stay fit. However, ensure you observe all the safety tips for driving a two-wheeler. 

  • Use Public Transport

You can choose to commute, which will help you save on the costs of running and a car. You can rely on commuter rail systems, buses, light rail systems, and trains.

  • Share Rides

Do you work at the same place as your neighbors? Do your kids go to the same school? You can share rides to help save travel costs, which are also called carpooling. You can take turns on who is driving or picking up the kids. 

  • Watch on Maintenance Costs

Ensure you do regular maintenance on your car. You could conduct DIY car maintenance or find a reliable mechanic. A small unattended problem at present could turn out to be a huge one, and this could cost you more. 

  • Save on Auto Insurance

There are many ways to save on auto insurance. For example, you can source for better rates or coverage, you can ask for discounts, choose high deductibles, among others. 

b. Food

You will save more on food if you minimize the number of times you dine out and focus on grocery shopping. Here are some of the tips you can use to trim expenses to save money on food. 

  • Cook in bulk and store it in the fridge
  • Buy on season produce
  • Cook more, dine out less
  • Save money on groceries

c. Housing

You can save money from your housing expenses, which you could redirect to your investments or savings. Here are some tips on how to save on accommodation:

  • Get a Roommate. You will be able to slice your rent budget by half, among other housing expenses such as repair. 
  • Move-in With Your Parents. You may find it shameful, but you can dedicate yourself to living with them for a few months. You will use the money you would need for rent to invest in. 
  • Be Aware of Tax Breaks. Homeowners with low income and increased housing costs often receive tax breaks in some states, for example, Michigan and Florida. 
  • Learn How to Do Necessary Repairs. They will help you save on costs like hiring a plumbing expert. 
  • Find a Good Insurance Policy. There are several ways you can save on home insurance, for example, asking for discounts and having enough money for deductibles.  

d. Entertainment

Entertainment is a want that we usually overspend on. However, we can spend less and still have fun. How? 

  • Consider a Staycation. You may need a holiday, but you are unable to finance a trip. However, a staycation is still an option. You can look for fun things to do at home or within driving distance. 
  • Find Free Concerts. Your City’s website should notify you of such events. A free concert is an excellent and cost-effective way to have some entertainment.  
  • Get Restaurant Discounts. Dining out is also a form of entertainment. We asked you to minimize it to save on food costs, but you can also get good deals when you choose to eat out. An excellent place to start for coupons and deals is
  • Turn a Hobby Into an Investment. If you have an interest like art or selling, you can rely on platforms like Etsy to generate income. If you like music, try finding some local gigs for tips. 
  • Stream Instead of Using Cable. Hulu and Netflix are great and cheaper alternatives to cable TV. 

There are many more ways you can have entertainment while you can save money. 

e. Shopping

You also have a chance to save money as you shop. There are a multitude number of ways you can do so, but let us narrow them down and help you save money.

  • Make the Store Your Last Option. Can you borrow the item or get it for free? Selling websites like craigslist or renting the item are some options you should consider. 
  • Negotiate Whenever Possible. You want to get a lower price for items. 
  • Time Your Purchase. For example, in grocery shopping, you are advised to buy produce that is in season. In general, see if you can get a better price elsewhere, for example, an online shop. Moreover, you can also get cheaper things at garage sales. 
  • Substitute. Source for something cheaper that can accomplish the task. 
  • Buy in Bulk. You will be able to save more. 

5. Lower Your Utility Bills

Your utilities are another cost factor in your budget. They comprise of water, electricity, gas, and telephone. 

Here are some tips you can use to lower your utility bills. 

  • Use Compact Fluorescent Bulbs. These last ten times longer and consume 75% less energy. 
  • Use Power Strips to Save Money on Electronic Appliances like your computer.
  • Maintain Your Appliances to Help Them Last Longer. 
  • Turn Down Your Water Heater.
  • Always Run a Full Dishwasher.
  • Air-dry Your Dishes Rather Than Using the Dishwasher
  • Consider Energy Incentives or Tax Breaks. Each state offers efficiency and renewable incentives.  

6. Change Your Lifestyle

You will have to make some lifestyle adjustments to be able to be financially independent and retire early. Look at some of the habit adjustments you can make to gain financial independence below. 

  1. Take Care of Your Health. You risk increasing your insurance premiums for something you can control like obesity. 
  2. Live Below Your Means. You need to establish what you need and what you want. You will be able to spend less and save/invest more. 
  3. Regular Maintenance. Maintenance costs are only a fraction of replacement costs. Make sure you take excellent care of your property, for example, your car, your house, etc. 
  4. Set Goals. We have talked at length about getting financial independence. However, this will be a vague idea if you fail to set specific goals, for example, how much do you want your bank account to read? 

7. Earn More Income

More income is necessary for you to quickly get financial independence and retire early. You may have a job, but you could still increase your revenue through side-hustles. There more than 100 ways to increase your income in 2019.  

Some of the ways you can earn more include:

  • Create And Sell Arts And Crafts

There are niche-specific online platforms for art, crafts, and antiques. You can also dedicate your time to graphic design where you can create things like business cards, occasion cards such as birthdays, or even logos.

  • Freelance

The freelance market presents many opportunities. Examples of jobs you can do include copywriting, data entry, logo design, editing, content writing among others. You can look up some of the top freelance platforms as they have an established and trustworthy customer base to help you earn more. 

  • Sell Your Expertise

Are you a good cook, musician, teacher, entrepreneur, or do you possess any expertise skills? There are dozens of online platforms that list your expertise and link you to customers to sell your knowledge. 

You Will Need the Following Three Steps to Help You Set up Shop:

  1. Define Your Expertise and How it Will Benefit the Clients. You will be creating awareness among your clients. 
  2. Build a Client or Fan Community. You will need to deliver valuable content and get in touch with your customers. 
  3. Define the Service and Payment Packages. Your clients will want to know what they are purchasing and the rates you are charging. 

8. Invest In Your Future

Investments are a vital part of your quest for financial independence and early retirement. Investments will grow your income and wealth. Let’s look at some of the ways you can invest in your future. 

  • Your health
  • Emergency fund
  • Retirement fund. 
  • Stocks
  • Bonds
  • Real estate
  • 401(K) account
  • Mutual funds
  • Annuities
  • Exchange-traded funds.

You will need to analyze each of the above investment opportunities into detail to know what interests you the most and what will work best for you. You should note that investing in your health and an emergency fund is very important.  

9. Lower Your Tax Liability Through An Intelligent Allocation

When it comes to asset placement, the tax authority will give different tax treatment to various investments. Bonds and dividends investments are taxed higher than capital gains. 

U.S. Individual income tax return. tax 1040. tinted photo

However, you will be able to save money if you place your investments in tax-advantaged accounts. A tax-advantaged account is one that has tax benefits such as exemption or is tax-deferred. 

Thus, even if you trade stocks and bonds, you can lower your tax liability significantly if you place them in tax-advantaged accounts. You could save thousands to even millions of money over time.  

10. Track Your Progress Toward Financial Independence

You will need to use various personal finance metrics to track your progress towards financial independence. 

The personal finance metrics include:

  1. Income. How fast you gain financial independence is relative to your income. The more you earn, the faster your chances of achieving financial freedom. You can estimate your progress from your gross income, net income and net income after tax.
  2. Expenses. You will need to track how much you spend every month and every year. You want to maintain your expenses well below your income. 
  3. Personal Inflation Rate. Your personal inflation rate is the rate of increase in your household goods and expenses every year. 
  4. Savings Rate. Your savings rate is the percentage allocated to your savings from your income. I suggest you delegate at least 10% of your income to savings. 
  5. Net Worth. It is essential that you keep up with your net worth, which is your total assets minus your total liabilities. 
  6. FI Number. Your Financial Independence (FI) number is the amount you need to gain financial independence. If you base the number on your net worth, it means your net worth will need to match the number to attain financial freedom. You can measure your FI number based on your expenses. The number is 25 times the cost of your business expenses. You can also go through a FI number guide to help you compute your number from scratch. 
  7. FI Ratio. You get your FI ratio by dividing your net worth by your FI number and multiply the result by 100%. The FI ratio defines the percentage you have achieved so far towards gaining financial independence. 
  8. Passive Income. Passive income is what you earn without actually working.examples of passive income include real estate or stock dividends. 
  9. Investment Fees. The investment fee is the annual amount charged on your investment money. You need to minimize these fees, and you can do so if you invest in passive index funds. 
  10. Asset Allocation. Asset allocation is the amount delegated to your bonds and stock. Track it at least once a month. 
  11. Emergency Capacity. The emergency capacity defines how much you have in your account to help you deal with emergencies. 

Final Word

The key takeaways to how you can become financially independent before your retirement age are: 

  • Control your spending
  • Eliminate and avoid bad debts
  • Grow your net worth
  • Evaluate your expenses and cut them 
  • Lower your utility bills
  • Change your lifestyle
  • Earn more income
  • Invest in your future
  • Lower Your Tax Liability Through An Intelligent Allocation
  • Track your progress towards financial independence. 

A typical approach towards achieving financial independence is by tracking your expenses and cutting them, reducing your spending and  investing aggressively. The most important part of this journey is self-control, discipline, and responsibility.  

Financial independence is something you work to build over time and you can be financially independent at any age. You will need to define your goals clearly. You also need to set a definite FI number. Increased impulse spending and debts can deter you or slow down your journey.


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