To become financially stable is a goal and ambition for all. In fact, this is utterly needed to lead life in an effective and positive way. However, as it difficult to be heard, it’s actually not. Some calculations can clear every detail about how and when you will be capable of reaching your goal.
However, to be more specific there is a formula for financial independence that will help you to know more in this regard. That’s not too tough to get into that. Basically, FI formula has two separate parts, which incorporate calculation of your FI number at the first instance and years to reach FI at the second.
These formulas can be jotted down in the following way:
- FI Number = Yearly Spending / Safe Withdrawal Rate
- Years to FI = (FI Number – Amount Already Saved) / Yearly Saving
However, to become financially independent, you can start following some simple but necessary steps.
Steps to get monetary freedom:
Well, there are several stages that you may shadow properly to meet up your desire in case of being financially stable. These stages can be summed up in the following way:
#1 Estimate your expenses:
At the very beginning, you need to be aware of your spending amount. You must calculate your yearly expenditures by creating a budget. You can enlist your plans in a spreadsheet or in a paper or notebook. You can also get access to some financial apps that will allow you to summarize everything easily. Surely, you need to pay for your house, cable, groceries, internet, etc. at a monthly basis. Just multiply the total sum with 12 to get the yearly value. Don’t forget to add the emergency expenses.
Remember, the more the amount is the more time is needed to reach the target. So, try to be thrifty in spending.
#2 Figure out your FI number:
You can count your FI number with the assistance of the total amount of money needed to give you that level of income. However, FI is dependent on two things including your current spending, and your safe withdrawal rate (SWR), which is the percentage of savings that you can withdraw safely.
#3 Determine time to reach your FI:
This is the final part of your aim. Here the financial independence formula clearly portrays how much money you are necessitated to save each year to touch that desired level. This is quite easy. You just require subtracting your yearly spending from the total money you earn throughout the year. That would help you to identify your yearly saving.
Well, now it’s time to figure out how far you are from your target. You just have to divide the money you need to save with the amount you generally save each year. Quite naturally, if the saving is smaller, you will necessitate longer time to experience your FI.
That’s not all a person requires realizing. He or she should definitely hone the skill regarding saving. There are several beneficial tips following which a person can save more.
How to save more amount for financial independence:
As uttered previously, there are numerous ways out that will open your path for saving huge amount. Those points may add:
- Paying off your debts should be your priority. Debts can be characterized in various forms such as educational loans, car or house loans, money lend for medical or emergency purposes, etc.
- You can cut down some of your unnecessary or extra expenditures for saving purpose. For an example, you may minimize your internet or phone bill. Using credit and debit cards in a prudent way can also be essential and helpful enough. Minimize the amount you require for shopping or enjoying with friends. Try to avoid expensive foods and luxurious lifestyle.
Besides, there are several other tactics to maximize your income. More earning will assist you to minimize the year of your FI. These guidelines can include the following issues. Just have a look at them.
Sometimes, your main job can help you to earn extra monetary amount. Go for doing extra shift or overtime to get paid more.
Opt for part-time jobs:
Next option is selecting a part-time or second job. You can choose by judging your capacity or capability. Freelancing, tuition, small business can be mentioned as the best possible options.
Sell excess belongings:
We all generally possess some old things, which we don’t require now. You are also not an exception to it. This is optimal to sell those possessions to earn some amount. Several online sites are also available nowadays that may enable you to get more money.
Choose passive income stream:
This may be another option that you may choose. You can fetch money from your own properties in that case. Such as, you are free to take rent from your owned house. You may also acquire money by getting royalties from your published music or book and maintaining a website also.
All these ideas are undeniably helpful in fulfilling the necessity of becoming financially independent. It is nothing but a challenge to meet up that target before your retirement and quite naturally, this is not at all possible for everyone to mollify that goal. But, if the above-discussed matters can be taken up seriously, nothing would be impossible.