ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

How to Achieve Financial Independence in Six Solid Steps

Updated on July 18, 2020
Kshitij Anand profile image

Kshitij has over 10 years of experience in the financial services industry. He has been associated with Axis Bank since its inception.

What is financial independence?

Cut back on your biggest expenses
Cut back on your biggest expenses | Source

Financial independence refers to a state where we have enough resources at our disposal to meet our expenses as well as fulfil our future financial goals."Never having to work again", some might imagine. You don't have to look for hope here. For many US citizens, this "dream" is "automatically" fulfilled when they retire.

It's not as simple as it used to be. Because the pension is no longer as "safe" as a German minister once said bluntly. But life or pension insurance can usually somehow compensate for the pension gap.

And how about before retirement?

The best way to quickly put aside the dream of "never having to work again". Sure it feels great, but can never be guaranteed. Because of the financial crisis and the current corona pandemic should have made the last one clear:

  1. Nobody knows what the future will bring!
  2. Often comes unexpectedly.

What can be guaranteed or achieved with a high degree of certainty?

The closer the future is, the better it can be predicted. A period of 3 to 5 years can usually still be seen reasonably well. Accordingly, financial independence means:

How do you build financial independence?

By learning the difference between “wants” and “needs”. We all have infinite wants in this infinite world. But we can only learn to make do with what we have within the confinement of our very limited resources. By being rational on my purchase. Whenever I feel the impulse to buy something I know I can live without, I will ask myself how much will the item worth 5 years from now. Consistently checking the balance of my savings account. Seeing the numbers grow motivates me to save more and to spend even lesser.

The following tips have proven their worth for me. However, this does not necessarily mean that everyone else can practice them (e.g. due to a different starting point or different living conditions).

1. The 10 percent rule

Transfer 10% of your net income to a separate account per standing order every month. It is important that it is an automatic process. The money must be transferred before you can intervene. This way, you learn very quickly to get by with only 90%. After just one year, this rule saved you one month of financial independence.

Save as much money as you possibly can. Every penny you can. Instead of coffee, drink water. Instead of going to McDonald's, eat Mac and Cheese. Cut up your credit cards.The first step to getting rich is having cash available. You aren't saving for retirement. You are saving for the moment you need cash.

Spend less than you make and invest the difference

2. Live under your circumstances

If you follow rule 1, you are already living under your circumstances. However, it will take 30 years to save a buffer of 3 annual salaries. The dynamic is simply missing.

Real miracles are possible if you automatically transfer at least 50% of every salary increase and bonus to the savings account. The highlight of the matter: You don't have to do without doing anything here. The remaining 50% can be used to slowly increase your standard of living without remorse.

Also, watch out for bargain hunters. Oh, what we are happy about bargains. 70% off today only. Who doesn't like to access? Saving can be that easy.

Offers like this are common. They often lead us to buy things that we don't actually need from an impulse. Saving looks different. But even if you urgently needed the item in question, it is only really saving if you transfer the discount received to your savings account.

3. Do not accept any future liabilities

Avoid any loans, however tempting they may be. Even with 0% offers you should be careful. Such a loan would have no disadvantages on paper. But ... such offers sometimes lead to people buying things that they either do not need or cannot afford at the moment.

Lease a vehicle privately is nothing else. The rates may look low. With a new car, you finance the 50% loss in value of the first 4 years with your rate. Small cattle also make crap. Why not buy a used car right away? It also takes you from A to B and drives almost as well as a new one. Sure, he can break down. But ... for the otherwise co-financed loss of value, you can afford some repairs.

The principle should, therefore, be clear. Buy only what you can currently afford and don't lightly mess up your future. Even if everything looks rosy today, the job can be tomorrow. And how are the loans to be financed?

4. Invest your money yourself

Start as early as you can
Start as early as you can | Source

The world is full of financial experts. At least there are many people who sell themselves as such. However, the monkey is better than humans ... at least when it comes to selecting stocks.

According to the theory, funds should deliver wonderful profits. Unfortunately, it is also a fact that most are below the performance of the market. One wonders what all the expert knowledge is worth and what the highly acclaimed fund managers actually get their money for.

If things are going stupid, then at least I want to be responsible for it myself ... at least that's my motto. If you make mistakes yourself, you can at least learn from them and improve yourself. Declaring a fund manager or financial advisor to be a scapegoat does little for your own destiny.

To invest your money yourself, you will have to deal with the matter (if you are not a player). At least that way you learn what you've gotten yourself into. After a few years of practice, you get a feel for the real opportunities and risks, or what you think makes sense for yourself.

5. Man does not live on bread alone

With all the pursuit of financial independence, one should never forget that everyone is mortal. What is all the striving for financial independence for when everything can be over tomorrow?

Admittedly sounds a little dark. But who does not know the stories of totally disciplined savers who suddenly fell ill and could almost afford the yacht to sail around the world, but suddenly it was no longer health-wise.

Ultimately, financial independence only works if you have learned to live happily ever after. This also includes doing something good every now and then and keeping a healthy amount of savings.

6. The ultimate shortcut

Avoid taking shortcuts
Avoid taking shortcuts | Source

Becoming a millionaire is not difficult at all. I have done this several times within 12 hours. No, I didn't play Monopoly. I had real money on hand, just a few hundred thousand as they are common in Vietnam, for example.

That may sound funny but the path to financial independence is quickly paved if you move to another country. There are numerous countries in which you can live magnificently with 500 EUR per month. In any case, your savings will go much further than in Germany.

If you do it very skillfully, you will find an investment that pays exactly this EUR 500 per month. Financial independence can be that easy.

Bottom line

At some point, almost every human on the planet (with very few exceptions) will have to work a job and trade their time for money. This is so simple and obvious that we tend to forget about it, but it should be on your mind every time you open your wallet.

The key is in the spending habits and to a lesser extent in the “earning habits”. Some other commenters already implicitly or expressly pointed in that direction.

A secure income is, of course, a good foundation. To get there, get decent job skills and working habits. Regardless of whether you run your own business or accept employment. Reliability, dependability, discipline and the other boring old fashioned stuff works in that direction.


This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

Show Details
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
ClickscoThis is a data management platform studying reader behavior (Privacy Policy)