Financial Literacy: Financial Stability, Financial Independence or Financial Freedom

Financial Independence means we have enough money or assets to pay our own living expenses for the rest of our lives without having to be employed or dependent on others.

In other words, we have been able to replace our earnings from our jobs with what’s called passive income – earnings that come from interest on savings, dividends from stock, income from bonds, rental from investment property.
Financial advisers estimate that we need 25 times our annual expenses to be considered Financially Independent. This is another reason for keeping a budget – to keep track of expenses. So if our monthly expenses are $2,000, or $24,000 annually, we will need to have $600,000 in a mix of investments to be considered Financially Independent. Wow, that’s a big number, but it is achievable.

How long it takes, depends on your life style and your determination to save. Here are seven ideas of how to start:

• Spend less than you earn. A shortcut for budgeting is to use the 50/30/20 rule: This means targeting 50 percent of your income toward needs; 30 percent toward wants; and 20 percent toward savings.
• Have a saving mindset. One great tactic is to pay yourself first by setting up an automatic monthly transfer to your savings account. Make it a habit.
• Create a separate fund for “emergencies.” Try to save enough to cover three-to-six months’ essential expenses. .
• Control debt. Don’t charge more than you can really afford to pay off in full every month.
• Get medical insured. If your employer doesn’t provide it, look into buying a policy through healthcare.gov. If you’re 26 or younger, you’re still able be included on a parent’s policy. If you have a car, you need automobile insurance.
• Think retirement starting now. The sooner you get started, the less you’ll need to save.
  • In your 20s, try to save between 10-15 percent of your gross salary between what you and your employer are contributing. If your employer offers a 401(k) match, try to put in enough to get the full match.
  • If you start in your 30s, ramp that up to 15-20 percent.
  • 40s, make that 20-25 percent.
• Invest. If you’re unsure how to invest in stocks, consider working with a financial advisor who can help you put together a financial plan and show you how to start. You don’t need a lot of money to begin.

In the last ten years, minimalism has become one of the biggest growing movements in the US and around the world

A minimalist tries to live in a smaller house with fewer clothes and less furniture, go out less frequently to dinner or concerts or sports events, and spend time vacations hiking in national parks, enjoying local museums and beaches, or visiting family and friends. They may share living expenses with a roommate.

Many people believe minimalists are happier because they have less worry, stress, and chaos in their lives. To a minimalist, material things are trivial compared to what they value most, which consists of quality time for relationships, time to enjoy the simple pleasures of life, and spiritual health.

On the other hand, a materialists are happiest when they are actively doing things and buying. Possessions are important to them – clothes, cars, electronic equipment, and gadgets. Their homes or apartments reflect their social status (of how they want people to see them). Going out to eat, to the movies, sport events, concerts, and at least one or two vacations away a year.

Regardless of whether you are a minimalist or materialist or somewhere in between, following the 7 rules we went through will put you on the path to Financial Independence.