Financial Independence is a great thing. It means you are free to choose to do what you want and do not have to rely on your job to support your lifestyle. Who would not want that? More and more people are trying to become financially independent.
However, the road to Financial Independence is paved with obstacles. To overcome these obstacles, you will need to use all the weapons that are available to you. Mastering these weapons will make your journey to Financial Independence faster and simpler.
In this post, I am going to go over the nine most essential weapons that are available to you to reach Financial Independence. Some of these weapons are essential, while others are more optional. However, you will need to use a combination of these weapons and master them if you are serious about becoming financially free!
Stay tuned to master your fight to Financial Independence!
Nine Essential Weapons to Reach FIRE
Frugality is your main weapon
To reach Financial Independence, you need to be frugal. Frugality is one of the best weapons for Financial Independence. This is not a mandatory requirement since you can reach Financial Independence with any level of expenses. However, the lower your yearly costs, the faster it will be to achieve Financial Independence.
By definition, you will reach Financial Independence once you have accumulated enough net worth to cover your yearly expenses for 25 years. Another possible interpretation is to get enough passive income to cover all your annual costs.
So, if your expenses are lower, your net worth, or passive income goal, will be lower. You will have to accumulate less money before you can reach FI. Spending 10% less money each year can easily save one or two years from your journey to Financial Independence!
There are many things you can do to save money. You can start by stopping eating out too often and cook yourself. There are many ways to save money on groceries. Many people are paying for things they do not need. You can cut some of your bills that you do not use as much as you think. Some people are going very far to save money. You need to find your balance of frugality.
One thing that is important to keep in mind is that you will need to keep that level of frugality once you are financially free. If you do not feel comfortable with your current frugality, you should fix it before you retire!
2. Your Main Income
Your primary income can be extremely sharp!
Frugality, in itself, is not enough. You need to save some money to increase your net worth and reach Financial Independence. Therefore, your Income is a potent weapon! You should sharpen it as much as possible. Do not let your Income Weapon rust!
The more money you get every month, the more money you can add to your net worth. Therefore, increasing your income goes a very long way towards speeding up your progress.
Reducing your expenses has a lower limit. There is a point under which you will not be able to cut it further. On the other hand, increasing your main income is almost limitless. Some of the ways to improve your main income can be very difficult, of course. But there is more potential in increasing your income than there is in reducing your expenses.
On the other hand, when you increase your income, you have to be careful not to become a victim of lifestyle inflation. Do not be tempted to spend more because you are earning. Lifestyle inflation is the reason why a lot of high-income earners are not wealthy!
The ways to increase your main income will vary from one job to another. But there some simple strategies to increase your main career income. For instance, you should not wait for a raise. You should ask for a raise if you deserve it! If you think you can do more, do not wait to be asked, ask for more responsibilities! You could also get more education or even change jobs. There are many ways to increase your career income.
Considering your career as a weapon will help you make it stronger. And wielding a stronger weapon will improve your journey towards Financial Independence.
Crush inflation with the Investing Hammer
If you master the first two weapons, Frugality and High Income, you will be saving a lot of money every month. Unfortunately, inflation causes your money to lose value every year.
You need to fight inflation with your Investing! You will need to invest your earned money. Not only will this negate the results of inflation. But this will also make your money work for you. If you invest your money in broad market index funds, you can expect between 5% and 8% returns on average every year. This will mean that your net worth will itself generate more money! Your money will work for you instead of you working for money!
I have said before that having more income will make you become Financial Independence faster. Investing your money works in the same way! If you invest most of your savings, you will accelerate your progress even further!
Investing is probably the most complicated weapon to master. But it is incredibly powerful. However, if you keep to the basics and invest in broad stock market indexes through ETF, it can be learned by anyone. The simplest way to invest is to use a three-fund portfolio. Stay clear of actively managed investments. Their fees will eat through your returns. By keeping investing simple, you will reap the profits of the entire stock market and minimize your fees!
4. Passive Income
Your Financial Number is based on your yearly expenses. But, what if you could get some income in retirement. And what if this income did not require you to do anything? This is called passive income, and it is a mighty weapon to reach Financial Independence faster.
If you have yearly expenses of 50’000 dollars and a passive income of 10’000 dollars each year, you only have 40’000 dollars left to cover. That means that your FI number will be 10’000 dollars lower! If you use the 4% rule, you will have to save 250’000 dollars less before you are financially independent. Passive income can make a huge difference!
The most used passive income stream is tied to the previous weapon, Investing. Most stocks will pay dividends. Dividends are an easy way to generate some passive income. If you invest through a broad index ETF, for instance, you will receive some dividends quarter after quarter. This can be used to grow your income. And it can also be used to cover your expenses in retirement.
Another passive income stream is Real Estate. If you own a house and rent it, you will receive some money, month after month. This is not as passive as dividends. But it can generate very nice returns and strong passive income. Many people are financially independent only through real estate investing.
There are companies that give you the ability to invest in real estate projects without having to do any of the heavy lifting yourself.
One example is DiversyFund. It’s a private REIT (real estate investment trust) that allows you to invest in professional real estate projects passively for as little as $500. The thing I love about companies like DiversyFund is that they don’t make money unless the investors make money since they invest and manage the projects themselves.
There are many other ways to generate some passive income. Every little bit of passive income that you will have will help you reach Financial Independence faster.
5. Side Hustles
Your side hustles can hit many targets!
Another extremely efficient weapon to reach Financial Independence is to start a side hustle. A side hustle is a small job next to your main career job that will bring some extra income. You can even go one step further and have several side hustles.
Now, this is not for everybody. This means you will have to work more while you are accumulating your net worth. However, this can make it significantly faster. You need to make sure to keep a balance between your life and your jobs.
Also, side hustles can help you while you are financially free if you continue them. Once you are financially independent, every bit of income will help. For some people, this is not staying true to the definition of financial Independence since you still rely on this income. However, the definition of Financial Independence can be adapted to everybody!
There are many side hustles out there. From the weirdest, sell used panties to something more conventional such as flipping cars. You could tutor kids in your area. You could also drive people around for money. Or if you are a handy person, you could build things and sell them. And if you do not build things, you could buy them and sell them for more. Finally, a very trendy side hustle is also to start and monetize a blog.
Each person is different and will consider some side hustles, but not all of them. Some people will have many side hustles will some will have none and will solely focus on their career. Everybody is free to choose their weapons. But it is essential to know that the weapons are available should you need them!
Even if you master all the weapons already mentioned, you will not become Financially Independent in one day! Patience is an important weapon. But this not an easy one for some people.
For most people, reaching Financial Independence will take anywhere from five to fifteen years. It is crucial to be patient during your journey.
All along the way, you need to be careful to continue to improve your usage of all the other weapons. And do not get distracted out of your path!
One way to make it easier to wait until the end of the journey is to have small goals along the way. If your only goal is to become financially free in five years, the first years will be challenging to keep motivated. You can make it your goal to achieve an FI ratio of 10% in the first year, for instance. Or reduce your expenses by 10% in the two first years. By having small goals and fighting to reach them, it will be easier to wait for the primary goal!
7. Positive Attitude
Use Positive Attitude as a shield
Another thing you will need in your journey is a positive attitude. You should use this as a shield! Indeed, you will likely encounter many criticisms once people become aware of what you are trying to achieve. You need to shield yourself from this.
A lot of people will likely think that what you are trying to achieve is impossible. This is especially true if you are planning to retire very early. Once you tell people you will retire before you are forty, they will, at the very least, be very skeptical. Some people will be interested, of course. But I do not think this is the majority of people.
Moreover, there will also be the people that will tell you that early retirement is bad for the economy, and hence, other people dependent on this economy. Some people are saying that this will cause a lack of workforce. They are also afraid of the lack of talent in some companies.
I do not share any of these beliefs. However, we should be prepared to hear them and accept them. We should keep a positive attitude against these negative comments.
Online security is your armor
In this age, many of your financial tasks are likely made online. You will need to ensure that all access to these online services is as secure as possible. Security is an essential defensive weapon. You should view it as your armor!
If your broker account is compromised and you end up losing a lot of money, this could seriously affect your path to financial freedom. The same is true if someone spends a lot of money on your credit card. It is imperative to be serious about security.
The first thing you should do is to use a long password for each of your online services. And you need never to use the same password twice. And if you can, you need to use two-factor authentication as much as possible. More and more online services offer it these days. But too often, it is an option. It should be mandatory.
Another thing that you need to secure is your phone! You can likely access your financial accounts from your phone. Therefore, you must secure it! And this is even truer if you use your phone as a two-factor device. You should use a code, as long as you can, instead of a pattern. And you should make sure your phone locks automatically after some time.
Finally, if you use debit and credit cards, and you should make sure to use a different PIN on each of your cards. And make sure to block a card as soon as possible if you suspect foul play.
9. Credit Cards
Your credit Cards are like daggers – Small, but you can wield many
Credit Cards are often considered a bad thing by many. And it is true that if they are misused, they can significantly slow down your finances! However, if they are used correctly, they can serve you well.
The most important things are to avoid any credit cards with an annual fee. You only need to consider free credit cards. This will save you money every year.
Then, you will need to take the credit card that will bring the most returns to you. This can be in the form of pure money cashback. Or this can be in the form of coupons that can save you some money on things you would purchase anyway.
You will also probably need a travel card to save money on foreign exchange currencies. Most banks will charge between 1.5% and 2.5% on each transaction that you do in another currency than yours! You can eliminate all these fees with a travel card. This can save you a lot of money if you travel a lot or purchase things online in other countries.
You must use credit cards correctly. You should never carry a balance on any credit card! If you always pay your credit card bill in full and choose a free credit card with some cashback, you cannot go wrong!
Your credit cards are smaller weapons, like little daggers. But you can use them several of them to make an enormous impact! You will need all the weapons you can get to become financially independent.
Financially Independent Retire Early
These nine weapons are essential tools you should be using in your journey to Financial Freedom. You do not have to use all of them, of course. But you should know that they are here for your usage. And the more you are wielding, the faster you can reach Financial Independence!
You should use as many of these weapons as you can. But you should also learn how to master them. Sometimes, a powerful weapon can overpower several other weaker weapons. And in some cases, you can improve your weapons yourself. And since every journey toward Financial Independence is different, you can even make up your weapons!
Not only this will make Financial Independence possible, but it will also allow you to reach your goal faster. You want to make your journey the best possible one.
What weapons are you using to become Financially Independent?
Michael launched Your Money Geek to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.