Common Wrong Turns On The Road To Financial Independence
So you want to achieve that exalted state – financial independence – where the income from your savings and investments saves you from the grind of working life?
It’s a fine goal to have, one that can let you live your best life. But it’s a long road to get there and there are plenty of wrong turns you could take. Spotting them ahead of time can help you out.
Comparing Apples with Stop Signs
It’s only natural to compare your own achievements with those of other people, but it’s important to compare with the right people in the right way.
Sure, examples like Financial Samurai and Mr. Money Mustache are inspiring, but they’ve spent years getting to where they are.
Learn from their example but don’t beat yourself up for not having their level of wealth and independence. You started on this path at a different time. It’s OK that you have further to go.
Thinking It’s All About Income
Another disheartening comparison is with people on high incomes. It would be easy to gain financial independence if you just earned what they do, right?
Not necessarily. Yes, your pay cheque is important, but it’s not everything.
There are people who earn millions but never achieve a stable, independent income because they blow it all on the high life.
On the other side, there are people on modest incomes who make good because of their side projects, frugal habits, and wise investments.
The correlation between high income and achieving independence is far from perfect.
Not Putting in the Effort
Speaking of habits, your own financial and working habits are crucial to earning the financial independence that you want.
Most people never become financially independent, so if you want to achieve that independence you can’t behave like most people.
You have to develop strong discipline, take tight control of your finances, put in the extra hours.
It’ll pay off once you are independent, but the path to get there isn’t an easy one.
Not Recognising How It Will Affect Your Family
Following those habits won’t just affect your life, it will also affect those closest to you.
If you’re being careful about budgeting then that will affect spending by and for your spouse and children.
That means that your other half has to be on board with the project.
They have to be willing to join you in saving money, not reluctantly but willingly. If they resent financial constraints then that may put an unbearable strain on your relationship.
It also means that you have to be OK with not giving your family everything they want.
That can be stressful, especially if you define yourself as a provider. What benefits you all in the long term can be stressful in the here and now.
The Costs of Children
Speaking of family, having one is a costly undertaking.
Children will absorb a lot of your money, your time, and your mental energy. This will set limits on how much you can do towards earning financial independence.
Having children and being financially independent are compatible goals, but you have to be aware of the limits children will place on you and adjust your plans accordingly.
The Strains of Uprooting
Where you live can have a big impact on both your finances and your lifestyle.
If you’re looking to save money, then moving to a cheaper area, or even a cheaper part of the country, can be hugely helpful.
Though the most obvious difference is in house prices, there are also noticeable cost differences in other areas.
If your work allows it then moving from London to rural Yorkshire could save you a small fortune.
But there’s a catch. To keep working towards your goals you have to be happy and emotionally healthy.
Living in the wrong place can put a huge dent in that.
If you move to a suburb full of people you have nothing in common with, or if you love the bright lights of the city but move out to a small village, then the financial benefits may not outweigh the other costs.
Don’t choose where to live based purely on money.
Not Preparing for Old Age
When you’re working out how much money you need to be independent, it’s vital to take old age into account.
One day, you won’t be as capable as you are now.
If you want to live at home, you may need to pay for home care. If you use independent health care, then the costs of that will rise.
So when you’re working out how much you need to save to live independently, remember that you’re not just planning for now, you’re planning for decades to come.
If you do it right, then you’ll get to enjoy those decades living the life you’ve chosen.
So put in the planning, put in the discipline, and look out for the wrong turns that could lead you astray.
Paul Connolly
Paul Connolly has been a journalist for more than 20 years, as a reporter and editor for Argus Media, Reuters, The Times, Associated Newspapers and The Guardian. He has covered Islamic Finance for Reuters in the 1990s. Paul has since helped launch three newspapers, as well as reported from Tokyo, Los Angeles and Stockholm.
