The pursuit of early financial independence is a rapidly growing movement across the world. People are increasingly looking to re-calibrate their approach to their personal finances in order to secure their freedom from their current working lives and safeguard their future wealth.
But just where can you begin in this pursuit? And how can you ensure you have the right structure in place to achieve it?
As I’ve set out on this journey, I’ve given a lot of thought to what I consider to be the main steps to starting. So let’s address them in turn.
#1: Become aware of the problem
Before you can think about early financial independence pragmatically, you need to be clear on why you really want to start this journey. When my own realisation hit me, I had grown tired of corporate life and had begun to think more seriously about finite time. But I realised I needed a long-term strategy to becoming financially independent.
So when it comes to starting your own journey to early financial independence, be clear on why you want to start this pursuit, or the chances are you’ll lack the real motivation to see it through.
#2: Create a vision for your future financial independence
All good planning processes start with a vision. So visualise your future state of financial independence – and heck, even write it out so you can draw on it for inspiration when the going gets tough.
Think about what it is you want from your early financial independence. Perhaps you want early retirement and vacations. Or perhaps you’re just looking to be more financially self-sufficient and pursue your passions as a line of work. Whatever your end state looks like, make sure it serves up ample inspiration and motivation as you follow the course.
But also make sure your vision is time-bound and realistic. This ensures you don’t give yourself any excuses to kick the can down the road indefinitely, but also that your timescales are within the confines of reality.
#3: Set goals and targets for the three pillars
As I’ve set out before on this blog, there are three key levers for achieving early financial independence: saving money, driving increased current income, and investing and/or creating passive income streams.
I recommend setting some goals and targets for each of these areas so you have clear, quantified milestones as a measuring stick in your journey. Not only does this provide structure along the way, but it also serves as motivation while you monitor your performance against these targets.
There’s also ample psychological research and empirical evidence out there to back this up. Forming and achieving specific goals plays a crucial role in sustaining motivation and engraining positive new personal finance habits.
#4: Automate your finances
Personal finance experts extol the benefits of automating your savings and investments – and with good reason. Setting up automatic transfers and payments into savings accounts, investments and financial commitments periodically is proven to bear financial fruit over the longer term.
That’s because putting your money on ‘autopilot’ strips away the opportunity to spend the money on impulse and instead tucks it away for the future. So your money is allocated where it is needed as soon as it arrives, without having to grapple with difficult spending decisions.
And again there are a huge number of psychological studies to support this case. So you’d be mad not to consider it as a key part of your approach in the journey to early financial independence.
#5: Track and monitor your financial performance
Alongside your vision, targets and newly automated approach to your personal finances, you’ll need a way to track and monitor your financial performance and your overall net worth. Having a tracker for your income, expenditure, investments and liabilities is imperative as you track your progress against your financial independence milestones.
As well as reinforcing positive personal finance habits, a financial tracker allows you to see everything in one place, taking a holistic view of your overall progress and providing opportunities to identify and address trends in your personal finances. And it can also act as an early warning system if a particular area of your finances is not going to plan.
I have written before about my weekly date with my money and the benefits of this new level of financial tracking have been huge. But perhaps the most important benefit has been motivational reinforcement that I’m on the right path and headed positively towards my end vision.
Tracking and monitoring your financial performance is absolutely imperative on this journey. So don’t neglect it.
So what are you waiting for?
There’s no denying that there will be ups and downs on the journey to early financial independence. But with a proper framework in place, you unquestionably stand a better chance of achieving your freedom.
So why not get started today? Write a vision, set some targets and set up a financial tracker. Some small initial steps may just carry you a lot further than you first think.
