A Guide To Financial Independence

A Guide To Achieving Financial Independence

So you’ve come in hopes of realizing the dream, huh? The one that ends with you retired on a beach, watching the money roll in, phone in one hand and Martini in the other? In today’s world of insecure, low paid, gig-economy work, more and more people are trying to free themselves from the daily grind by achieving financial independence. But here’s a bit of a reality check for you:

Is financial independence really achievable? Yes, absolutely.

Is it easy? Hell no.

Achieving financial independence takes dedication, hard work, sacrifice, and – usually – a long, long time. If you’re not prepared to commit to any of that right now, then we genuinely suggest you stop reading this. This article is intended to be a complete guide to achieving financial freedom with real, practical steps and examples along the way. We’ll show you how – one small step at a time – you can start your journey towards being financially independent and secure.

But this guide isn’t going to be very useful to you if you’re under the illusion that there’s a quick and painless route to the finish line. There isn’t. Unfortunately, very few things in life come free or easy. The only magical loophole that lets you quit your day job tomorrow is the lottery. If you want to take your chances with that, then best of luck. However, this article is only for people who want a solid, proven route to financial independence, and are prepared to work hard for it.

Okay, enough with the hard sell. Despite being difficult to achieve, shooting for financial freedom is something we strongly recommend. We’ll look at the reasons why in a moment. But first, let’s figure out what we’re talking about here anyway.

What Is Financial Independence?

The easiest way to describe financial independence is as a means of sustaining yourself without having a job. Or at least, without having a traditional 9-5 job. As long as you can meet whatever your living costs are, without being reliant on an employer, then you qualify as financially independent.

Although there’s no easy route to independence, some will have an easier time than others. Those who are able to ‘make do’ and subsist on a smaller sum of money will have an easier route to the finish line than those living like a Vegas high-roller.

Those who are financially independent (can we call them Indies? I’m gonna call them Indies) often enjoy a source of ‘passive income’ – money that just shows up in your bank account with little to no effort.

If that sounds too good to be true, we can assure you it’s a real thing. Just think of how a landlord makes money. He or she collects rent every month from a tenant, and that sum is often more than the mortgage on the house even costs. Every month, the rent money drops into the bank, and the landlord gets to keep whatever’s left once the mortgage is paid. Et voila, passive income.

Let’s take another example. Say you have a profitable online business, perhaps an Amazon store that sells electronics. One day, you decide to hire someone else to run the whole operation for you. You pay them a salary, but luckily the store is making enough for you to still cream some money off the top. Someone else deals with all the hassle, you get paid. Passive income again.

Still not sold? Okay, let’s take another example, even simpler this time: your bank account. The bank pays you interest on your balance – usually, it’s a small amount because a lot of people live paycheck to paycheck. But imagine what your interest earnings would look like if you had $500,000 in the bank? Or $1,000,000? The same goes for dividends, stocks, bonds – anything that gives a return on investment usually qualifies as passive income.

Okay, you get the picture. There’s a lot of different types of passive income out there. It’s certainly a real thing that people use to sustain their lifestyles. The problem is you usually need to have money in order to make more. But before we get into that, let’s look at why anyone would want to become financially independent in the first place.

Why Is Financial Independence Worth Aiming For?

Well, firstly I’d flip the question and say why not? Wouldn’t you want to live a life of freedom without having to work every day? Or if you have to work, wouldn’t you at least want to do it for yourself and not someone else? That doesn’t sound too bad to me! If you genuinely love your job, then maybe there’s no actual need for you to become an Indie. But the chances are you found this article because you’re getting sick of the same old day-to-day, and I honestly can’t blame you.

But there’s another reason why financial independence is increasingly important, especially for younger people. In many ways, the world still hasn’t quite recovered from the 2008 financial crisis. Living costs are rising faster than wages in many places still. Young people are facing a triple whammy of job insecurity, pension uncertainty, and high housing costs. Oh, and the small matter of global climate change. And how to care for an aging population. Yikes. That’s a lot on anyone’s plate.

It’s natural for all of us to worry about the future, but young people in particular need to start actively planning for it. It’s not fair – not by any means – that this generation will struggle with unprecedented challenges and pressures. But it is a reality. At the time of writing, I’m 33 years old, and I’m currently planning as if there won’t be any kind of social security at all when I retire. Because for all I know, there won’t be.

what is financial independence
Young people are right to be worried about the future

Being financially independent reduces your reliance on systems and institutions which won’t necessarily still be there in 30 years. The fact is that anything can happen between now and then.

No-one can predict when the next shock to the global economy will come. But you can bet your life that it will come. By being financially independent, you’re better able to weather the storm. You’ll decrease your reliance on traditional employment, and by having diverse income streams you’re better protected against upheaval and global downturns.

Is Financial Independence Still Achievable?

In a nutshell, yes. Although it’s definitely harder than it used to be. Unfortunately, that goes double for young people and anyone who doesn’t have money or assets to use as a starting point.

So, why is it harder? Insecure work, for one. The rise of outsourcing and freelance ‘gig’ work is in the process of transforming the global economy. Globalization has made it easier for companies to shift operations and employment to countries with low wages and precious few workers’ rights. High-paying, high-skilled jobs for life are becoming rarer. Side hustles, zero-hours contracts, and low-paid work are becoming more common.

How does this affect your ability to gain financial freedom? Well, when people have less capital, they obviously have less to invest and save for the future. Most young people trying to buy a home today will end up saving harder and sacrificing more than their parents ever needed to. If you’re barely getting by as it is, how can you even think about accumulating enough wealth to quit your job?

Add to that the generally sluggish global economy, an aging population – amongst whom the wealth is increasingly concentrated – and the ever-spiraling price of homeownership, and it’s fair to say that conditions are very difficult for those seeking financial independence. However, it can still be done. Let’s take a look at how.

How To Achieve Financial Independence

It’s important to note that there are many routes to financial independence. As we’ve already seen, any form of passive income that covers your living costs will get you there. In this article, I’m going to focus on what I consider to be the safest and most obvious way: building a real estate portfolio.

I generally recommend following these steps in order, but strictly speaking, you don’t have to. I’ve written them in this order because it will – in my opinion – give you an easier time and faster results. But given the complexity of circumstances in people’s lives, this won’t always be an option for everyone.

These steps should be flexible enough to follow in more or less any order that is easiest for you. Nevertheless, we recommend that you at least read them in order. Later steps may not make sense to you unless taken in context with the earlier ones.

And remember: doing something is better than doing nothing. So if there’s only one thing on this list you can do right now, and everything else seems overwhelming or too difficult, don’t despair. Do what you can, safe in the knowledge that you’ve started the journey. Things will get easier the longer you stick with this process.

Ready? Okay, then let’s begin.

Start A Side Hustle

What do we mean by side hustle? Simply put, this can be anything outside your day to day work which nets you a bit of extra income. Many people focus on digital side hustles. For example, you could take up blogging, or maybe launch an e-commerce business that fulfills a particular niche. But a side hustle needn’t necessarily be digital.

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A side hustle is a great way of netting an extra income. Image source: https://www.shopblocks.com/

For example, if you like gardening, why not offer your services as a local gardener or handyman? Or you could offer babysitting services if you’re great with kids. Or maybe you’re very skilled at making jewelry and could start selling it at a local market. The key thing is, a side hustle should ideally be something you enjoy doing – a hobby or something that relaxes you – which can net you an extra income.

There are three reasons I recommend making your side hustle something you enjoy:

  • You’ll actually want to do things you enjoy outside of work
  • If you enjoy doing it, you’ll put more effort into making your side hustle successful
  • If your side hustle doesn’t ultimately pay off, at least you didn’t spend a lot of time on something you hate

There are lots of online guides available on side hustles and how to get started, so we won’t go into too much detail on them here. Bottom line: find something that you’re passionate about and see if there’s a way to generate some extra cash from it. This extra cash should go into savings or investments (we’ll talk more about that later).

Starting your side hustle is something we recommend doing early, hence why it’s the first step listed here. This is because a lot of side hustles take time to get off the ground. Depending on what it is, it could take years before it ever generates any significant income. And of course, there’s no guarantee it ever will. But if you’re passionate and hard-working, there’s really no reason your side hustle can’t provide you with a chunk of extra income.

Calculate (And Reduce) Your Living Expenses

The next thing to do is to reduce your cost of living, assuming you haven’t already cut this as much as you can.

One of the biggest single expenditures most people have will be their rent or mortgage. Unfortunately, there’s not a lot most of us can do about those, so we’re not going to touch them for now. But we will come back to look at rent and mortgage when we talk about relocating to somewhere with a lower cost of living.

But for now, let’s focus on the small simple things that most of us can do to reduce our cost of living. It goes without saying that you should cut back as much as possible on unnecessary things like new gadgets and clothes. We highly recommend going minimalist as a way to both fatten your wallet and clear your mind.

For a more detailed look at how to reduce your expenditure, we recommend this excellent guide from Careful Cents. Once you’ve cut all the extraneous spending out of your life, you should have an idea of the bare minimum amount of money you need to get by in a typical month. Let’s say for argument’s sake it’s £1250 per month, or £15,000 per year.

We now have something to shoot for. What you need in order to obtain financial independence are assets or investments which net you £15,000 per year in passive income. There are many ways you could do this. You could invest in a business or the stock market for example. But in this article, we’re going after real estate: investing in property which you can rent out for passive income.

But the next step in our journey has to come first. So…

Start Saving As Soon As Soon As You Can

At this point, you will start to have some extra cash available to save. Whether it’s through spending less or accumulating more (through your side hustle), any spare money you have should always be invested. This could be in a savings account, or through an investment such as stocks and shares. The bottom line is it’s time to start putting your money to work for you.

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Time to start saving!

NOTE: This article assumes that you aren’t already in debt, such as on a credit or store card. If you are in debt, it’s usually advisable to pay this off before you start saving, as the interest on the debt outweighs the interest on savings. Always seek professional financial advice before committing to a decision.

There are plenty of sources of financial guidance available online, so we’re not going to tell you exactly how to save or invest your money here. But what I will say is: while everyone wants the best rate of return they can get, I always err on the side of caution. If it’s a choice between a rock-solid 1% savings account or a risky 20%-or-bust investment, the bank account gets my money every time. There are a few reasons for this.

First of all, I just like safety. If our goal is financial independence, then part of that means making sensible, safe, boring decisions. I mean, what’s the point of having savings if there’s a decent chance you could lose it all? I like to have a solid grasp of where my money is, and that I can count on it still being there in a year’s time.

Secondly, tracking lots of complicated investments tends to be trickier than a simple savings account which you just keep adding to. Seeing the cash and interest build up in one place every month is simple, and also very rewarding. You’ll find yourself checking your balance more and more. As it builds, you’ll keep wanting to save more and see the pot grow. This is how the habit of saving forms and becomes ingrained.

Again, regular saving and sacrifice are a big part of our ultimate goal. Stocks and shares may seem like a tempting shortcut, but it can easily backfire and leave you worse off financially.

You’ll also notice I haven’t told you how much money to save every month. There’s a very good reason for that: it’s pointless. I’ve read a lot of articles about saving which seem to prescribe some arbitrary percentage of your income that simply has to go to savings. Here’s an example of the kind of crap people come out with in those articles:

“After rent and food, you should put away 80% of whatever you have leftover. When you think about it, you really don’t need anything else anyway.”

Or some other such nonsense. And you know what I always think when I read that? What about Grandma’s medication? What about the fact that gas prices are really high out here? In other words, how the hell do you know the reader’s personal circumstances so well that you can prescribe exactly how much they need to live on?

Of course, the writers of these articles don’t know that. They’re just assuming that everyone’s circumstances are the same as theirs. The reality is that you need to be the judge of what you can afford to save – not me or anyone else. And there’s a strong likelihood that number will vary month to month. Are you really not gonna spend any more than usual at Christmas, for example?

But it’s no biggie if you can’t save the same amount every month. That’s just life. As long as you budget regularly and stay disciplined, you’ll start to see the money piling up.


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Time to upskill!

Okay, so this step may or may not be applicable to everyone. If you’re already earning a decent salary in a skilled job, and saving your excess cash, then you can probably skip this step. You’re well on your way to financial independence in any case – just keep saving and move on to the next part of this guide.

But if you’re on a low salary, it may be worth investing some of your savings to enhance your income prospects. For example, you could take an evening class in coding and start applying for software development jobs. If software development is something you’re interested in and can earn you a decent chunk more cash, then it’s probably a sound investment.

Always remember to do an ROI (return on investment) calculation on any training and upskilling though. Let’s take a look at an example of this:

John and Ben* both manage to save £3000 over the course of a year in their respective low paid jobs. That’s £250 a month each in savings. They both earn the same salary and have the same cost of living. Ben decides he has it pretty good, and that he’ll stay put for a while. By doing more of the same, he’ll have a cool £6000 by the end of year 2.

John, on the other hand, decides to spend his savings on a 3-month course in business management, which conveniently costs exactly £3000. Ben laughs at this. “If you’re blowing all your savings right away, I’m definitely going to have more than you next year.”

If John completes the course, the promotion / new job that he can get should earn him an extra £6000 per year in salary. So, for the first 3 months of year 2 John is still putting away £250 a month from his regular salary while doing his evening course. Once he’s finished the course and gets the promotion, he can save not only that £250 but the entire extra £500 he’s getting from the pay rise. So for the first 3 months of year 2, John saves £250 per month. For the last 9 months of year 2, he saves £750 a month. This gives John a total of £7500 in savings at the end of year 2.

What about Ben? He still only has his £3000 per year savings – i.e. £6000 total at the end of year 2. So even though John took a huge chunk of savings and ‘blew’ it all, he’s actually ahead of the game. Not only that, but he will keep pulling further away from Ben’s total savings in years 3, 4, 5 etc.

Of course, this scenario is a total over-simplification. It may be difficult to get jobs in the field you’re training in, or you may end up with a period of unemployment. In some scenarios, Ben probably still comes out on top for a while. These things are very difficult to judge, but this example gives a rough way of calculating whether or not upskilling is worth it from a financial standpoint.

* In case you didn’t guess, John is the version of you that decides to and go after more money, and Ben is the version of you that would rather stay put. Neither version is necessarily ‘correct’ – your personal and professional circumstances will dictate which approach makes sense at the time.

Remote Work

Huh? What does remote working have to do with financial independence?

Remember how we said we’d come back to expensive rent and mortgages? Well, it’s time. Remote working is something that goes hand in hand with upskilling, and it can help you in this rent-crush quandary.

How so? Simple. Well-paid jobs tend to be based in expensive cities. People flock to where the good jobs are, which creates demand and pressure on housing, which in turn pushes the cost of living up. And all those other industries that support large populations – food, nightlife, entertainment – will usually charge more in areas that are affluent.

So, it’s something of a catch-22. If you want a job that pays well, you need to move somewhere where the financial gains are wiped out by the high cost of living. Remote working, on the other hand, allows you to have the magical combination of high salary and low cost of living.

Certain remote-friendly jobs (e.g. web designers, software developers) have pretty generous salaries. Now imagine if you were to pair those well-paid jobs with a low cost of living scenario. A scenario such as:

  • Spending 6 months staying with friends, house sitting, and couch-surfing. If you were working remotely and are prepared to live off the kindness of strangers for a little while, you could build up a big savings pot.
  • Living in a van for a year, working while you travel. Not only would you get to explore new places, but you’d also save money, as you wouldn’t be paying any rent.
  • Taking your big city salary and buying a house somewhere where property prices are so low they make you check your prescription. If your mortgage is smaller, you can save more money every month.
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Now, this I could live with!

Once you can work anywhere, you have the freedom to roam. And once you have the freedom to roam, the opportunity is there to slash one of the biggest parts of your livings costs: your rent / mortgage.

What to do with the money you’re not paying your landlord? You guessed it: straight into the savings account. Don’t worry, we’ll talk about what to do with all these savings you’re building up soon.

Remote working sounds great… for someone else!

Think remote working is only for some other lucky soul, and not for you? Think again. These days, more and more people are working flexibly and remotely. A majority of British people even voted flexible working options as their most-desired employment benefit in a recent poll.

There are many digital jobs – such as copywriter or web designer – that are often remote-first. That is, if you were picked up as an outside hire today, you’d be expected to work remotely unless you specifically wanted to come to the office. Hell, some companies even operate fully remotely and don’t have a physical location.

But even if you work in a cubicle in a traditional office, technological solutions might allow you to escape. Thanks to communications platforms such as Slack, Skype, and Zoom, it really is a lot more feasible to work remotely than ever before.

If you think your boss might be amenable to the idea, then why not float a trial – say one day a week. Then, work your butt off for that day. Show the company that you’re more productive out of the office than in it. Then maybe one day of remote working per week becomes two. Then three…

If your company shows resistance to you going fully remote, maybe explain your reasoning to them. In my experience, most employers try to be accommodating where they can, especially if they think you might walk away or – worse – leave for a competitor. And no, I’m not saying threaten to quit if you don’t get your way! This is entirely your call and depends on how much you want it. Having said that, remote working does come in very handy for the next step in our guide. Which is…

Investing Your Money More Permanently

What do I mean by permanently? I mean something that will net you an income you can start to live off of. As we’ve said, you could buy a business or invest in stocks. Anything to get to that magic £15,000 per year – or however much you need to live off of. But for the purposes of this article, I am talking about investing in property.

I know that some financial gurus out there prefer to invest in the stock market and believe that real estate is over-rated. They’re welcome to that opinion. Just as I’m welcome to the opinion that investing all your money in the stock market is like putting it on red at a Vegas casino.

In my opinion, real estate is just about the safest investment around. Even if house prices tank a little, they can only ever go so low. After all, there’s land under that house – and they ain’t making any more of it. Ultimately, property prices have only ever really gone one way. This step is critical in your journey toward financial freedom. Once you’ve invested in property, you gain access to more options – and more income potential – than you had before.

For example, if you’re going to live in the house yourself, you could rent out a spare room or parking space for some extra dough. You can use the garden to grow some of your own food and save on grocery costs. If you buy in a town that’s popular with tourists, you could rent out the whole place on Airbnb. Imagine covering your mortgage costs just by renting your place out one weekend per month, while you stay with friends? People do it.

Now, if you’ve read the previous step on remote working, you’re probably wondering how it ties in here. Well, once you’re not chained to a single location, you can shop around for somewhere with lower house prices. By investing your money in a house or apartment somewhere with lower prices, you can have a smaller mortgage. And a smaller mortgage will be paid off faster. That’s not to mention the fact that – bizarrely – it’s often cheaper to own a house than it is to rent it.

I know what you’re thinking: Aren’t cheap areas going to be sh**holes?

Well, yes and no. Cheaper areas to live in may be undesirable, but often they are perfectly nice and undervalued because of lower average incomes in the area. A classic example of this is the British seaside towns. They are often beautiful, picturesque places to live in. But due to them having no major industries other than the seasonal tourist trade, prices are kept fairly low – the people who live there can’t afford anything more. If you’re working remotely on a decent salary, you can.

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Rural or seaside locations can be cheaper to live in – and beautiful!

So, to reiterate: buying a property somewhere with low house prices will give you a smaller mortgage – probably less than the rent you’re paying now – and also increase your income potential. As long as you exploit that income potential to its fullest, you should be practically guaranteed to be better off than you were before.

Notice how each incremental step in this process nets you more money and / or a reduced cost of living. So, now that you have your initial piece of real estate, it’s time to consolidate and start rebuilding your savings. You’re going to need it for the next step. Which is…

Rinse And Repeat

Okay, so you have a property. What now? Well, thanks to your small mortgage, remote job, side hustle and your house’s extra income potential, you should have more spare money than ever before. Once you’ve rebuilt a bit of a savings pot to play with, we’d recommend you do the exact same thing again – invest it in more property. It’s one of the safest investments around and can once again net you an extra income through a holiday or residential letting.

You can probably already see where we’re going here. If you were to repeat this step a second, third, fourth time, you would be gradually building up a property portfolio. Each property should be generating more rental income than the cost of servicing the mortgage. The excess money? That’s all yours, and it goes toward funding your living expenses.

Remember back in the ‘Calculating your living costs’ step when you worked out that you only needed £15,000 to get by? Well, now you can figure out how many rental incomes you’d need in order to ‘pay’ yourself £15,000 after mortgage costs. The number you come out with tells you how many times you’d need to rinse and repeat this step.

Once you have money rolling in every month from rentals, you can start to think about extricating yourself from your job. As time goes on and your mortgage debt reduces, you’ll start to be able to use a higher proportion of your rental income for your living costs. In fact, judging the exact time when you’ve hit financial independence and no longer have to work could be tricky! You may over or undershoot.

But in any case, we’d recommend continuing to work for as long as possible. Pretty much until you can’t stand it anymore. Although property is a relatively safe investment, nothing is truly risk-free. By sticking with your job until your properties are counted as assets – and not liabilities – you’ll have hit the mother-load. Goodbye work, and hello financial independence.

That Simple, Huh!?

Of course, I’ve over-simplified things here. In real life, things don’t run this smoothly. The steps I’ve talked about here take years of hard work, dedication, and sacrifice. You’re beginning to see why I wrote that disclaimer at the start. But the point is, these steps should win you your financial independence… eventually!

The question then becomes, what will you do with that freedom? Learn the guitar maybe? Travel around Europe? The possibilities are endless, as long as you are willing to work hard now for an epic payoff later.

I hope you enjoyed this article folks. If you like this sort of thing, don’t forget to check out the rest of our blog for more tips on minimalism, nomadic lifestyles, and sustainability.

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