The idea of financial independence is something that many dream of. But that’s all it tends to be for the majority – a dream! Yet whilst full time retirement at a younger age may seem like something you can only wish for, there are some simple steps you can take in order to actually achieve financial independence.
First let’s look at the overall steps to take:
- BUDGET YOUR MONEY
- Decrease Expenses
- Increase Income
- Use difference to get out of all consumer debt
- Save an emergency fund
- Calculate your FIRE number
- Invest, Invest, Invest!
How to Achieve Financial Independence
- Create a budget. If only I had a pound for every time I said this to someone…. without a budget, you cannot possibly hope to be in control of your finances. And you can’t achieve financial independence without controlling your finances down to the last penny. I highly suggest using a budget that looks ahead – the one I sell on my esty store, looks forward by 12 months! I love seeing how decisions now will impact on my money later on.
- Decrease your expenses as much as possible. E.g. don’t get the latest iPhone. Go out less. Buy less. Make your own coffee. Meal plan every meal, and go shopping with a shopping list in hand. Know where every £ is going. Essentially, be mindful with your spending.
- Increase your income – side hustles. Whether it’s zero hours contracts, doing online surveys or teaching english. Every £1 counts. Even if all you do is make an extra £50 a month doing surveys on UserTesting.com, that’s still an extra £50 a month you can put towards your goals. That’s £600 a year! It will soon add up.
- Use the difference between income and expenses by allocating it into 1. your debt (first and foremost priority), 2. your emergency fund (at least 3 months of expenses, ideally 6 months) and 3. your investments.
- Calculate your FIRE number. How much will you need to live off of? For me this is the bare minimum. Do you just want to cover your bare minimum expenses, and work part time for “fun” money, or do you want to maintain your lifestyle now? Once you know your goal, figure out how much you will need per year, and multiply it by 25. This is your goal investment amount. Don’t forget compound returns, so don’t be too scared of this figure.
- Decide on your investing strategy – are you comfortable investing into individual stocks? Or do you want someone to manage the investments for you?
- Once you have paid off debt and created an emergency fund. Set up an investment account and invest the difference between income and expenses.
You have a few different options here. If you want to invest in individual stocks and you feel comfortable doing this, then an app like Freetrade or Trading 212 will be perfect for you.
Personally, for a total beginner I prefer the interface of Freetrade, as it’s far simpler however Trading 212 has no FX fees. Having said that, the Freetrade FX fees are quite low / standard compared to other platforms so I wouldn’t let that put you off. I have videos about both platforms if you’d like to check them out going through an in-depth pros/cons and the set up processes. Of course, there are tons more platforms and apps, these are just the two most relevant in my opinion as they are very suited to beginners.
What you’ll need to remember is with individual stocks, you are taking on more risk – especially as a beginner. You will need to be comfortable with the stocks you are investing in, and learn to do research on the stocks in question. A lot of apps are now starting to offer basic stock analysis, but it’s good to also do your own research on a variety of websites such as Simply Wall Street, Genuine Impact, Yahoo Finance etc.
However, if you aren’t comfortable doing it yourself you could opt for a robo advisor. I’ll do a more in-depth article about the different types of investing but a robo advisor is basically an automated, algorithm-driven financial planning service and invests your money based on your financial situation and goals.
Here, you’ve got the likes of nutmeg, tickr or newcomer into the market, Eurikah. Just be aware that with robo advisors there is usually a fee involved.
If we look at the two I mentioned, nutmeg charges a % of your portfolio fee. For an investment of £10,000 this works out at approx. £101. With Eurikah, they charge a flat fee of £5 per month (first month free) Obviously, somewhere like nutmeg may be better if you plan to invest tiny amounts (i.e. investing £10 per month to pay a £5 fee may not be the best idea), however if you’re serious about achieving financial independence and invest decent amounts, the unique flat fee approach from eurikah, could save you tens of thousands, over your investment journey. Which often results in either a better final outcome or achieving your financial goal years quicker. (Use code BOSS when signing up for £500 managed for free)
Now there are so many of these platforms out there, it’s hard to impress me. Tickr managed to do that with their ethical investing and carbon offsetting initiative, and Eurikah have done it with their unique approach to portfolio management and fees. They don’t ask you about your risk tolerance – since risk can be very subjective. instead they ask you how long you want to invest for, to achieve X, knowing they’ve already calculated the optimum risk/return over your time period.. basically time-based portfolios, which I think is pretty cool!
- Re-invest your dividends. This is REALLY important. This will form a huge part of your compound returns over time. You might be tempted to spend the dividends once they increase from the 20p’s to the £5’s but if you stick it out, you will be extremely grateful.
- Watch your money grow, until you are ready to take a backseat from work 🙂