If there’s one thing we all have in common, we desire financial security. But for most of us, that just seems like a pipe dream.
Fortunately, you can take steps to make this dream a reality – and none of them require winning the lottery or becoming a millionaire overnight.
In fact, becoming independently wealthy is something that anyone can achieve with careful planning and perseverance (did you know that 8% of American adults are millionaires?). So if you’re ready to take control of your financial future, read on for our tips to become independently wealthy!
What Does It Mean to Be Independently Wealthy?
Simply put, being independently wealthy means having enough money to support yourself without relying on others or outside sources like social security.
This can mean different things to different people, but typically being independently wealthy means that you’re able to live a comfortable life with average or above average living expenses, with no need for income from a job or financial support from others.
In other words, it doesn’t involve extreme frugality or cutting costs to an absolute minimum to survive. No one would describe someone with that lifestyle as being independently wealthy.
Certainly, there’s nothing wrong with being frugal and making the most of your money. But independently wealthy people do not need to rely on extreme frugality.
There’s no exact net worth, income, or precise definition that determines when someone becomes independently wealthy. Instead, it’s more of a general term that refers to someone who simply doesn’t have to worry about money.
You don’t have to be a billionaire to become independently wealthy (not even close). Reaching this level of wealth is a realistic goal if you’re willing to exercise financial discipline and display some patience. It will take years to reach the goal and generate enough passive income, but it’s very possible with the right mindset and the discipline to continue building wealth.
Independently Wealthy vs. Financial Independence: What’s the Difference?
It’s important to note that being independently wealthy is not the same as being financially independent.
Financial independence is another term that can mean different things to different people. If you read many personal finance blogs, you’ve probably seen the financial independence, retire early (FIRE) movement. The standard definition of financial independence within the FIRE community is having a portfolio worth at least 25x your annual living expenses.
This definition is based on the Trinity study, which determined that 4% of a retiree’s portfolio can be safely withdrawn for living expenses.
You could think of being independently wealthy as a step up from being financially independent. There are a lot of financially independent people who do not (yet) have independent wealth.
Those who are pursuing FatFIRE (people who want to be able to spend more money in retirement) are more likely to have goals that align with reaching the point of becoming independently wealthy. But those pursuing LeanFIRE (people willing to live a frugal lifestyle in retirement) are less concerned with reaching this level of wealth.
Related reading: FIRE vs. LeanFIRE vs. FatFIRE
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Why Focus on Becoming Independently Wealthy?
We all desire financial freedom, which means different things to different people.
For some, financial freedom might mean being debt-free. For others, it might mean having a large enough emergency fund to cover all their expenses for six months or more. And for others still, it might mean being able to quit their job and retire early.
But ultimately, we all want to get to a point where we don’t have to worry about money. And that’s what becoming independently wealthy can provide.
Yes, there are other paths to financial security and independence. But becoming independently wealthy is perhaps the most reliable and achievable way to get there.
Steps to Become Independently Wealthy
Now, let’s look at the specific steps you should be focused on if you want to reach this level of financial success.
1. Set Financial Goals
The first step to becoming independently wealthy is to set financial goals. This might sound like a no-brainer, but surprisingly few people take the time to do it.
You need to clearly understand what you want to achieve and why you want to achieve it. What does being independently wealthy mean to you? What is your definition of success?
Measuring your progress and knowing when you’ve reached your target will be difficult without setting specific goals.
Take some time and come up with short-term and long-term financial goals. You can determine the net worth you want to achieve, the size of the investment portfolio you want to build, or the balance you want to reach in your retirement accounts. Set an end date and give yourself a deadline for each goal.
Write down your goals and read them daily or at least once a week. This will help to keep you focused and motivated.
2. Live Below Your Means
The second step is to live below your means. This is easier said than done, but it’s absolutely essential if you want to become independently wealthy.
You must be mindful of your spending and ensure your lifestyle doesn’t exceed your income. Regardless of how much you make, you’ll never get ahead if you spend everything you make.
To do this, you need to create a budget and track your spending to be sure that you’re staying within the boundaries set by the budget. You can use an app, a spreadsheet, or pen and paper to create your budget and track monthly expenses (or use these budget templates).
If your expenses consistently exceed your income, you need to take a hard look at your spending habits and make some changes. It might mean cutting back on unnecessary expenses or changing some habits to get things back on track.
Related reading: Living Within Your Means
3. Eliminate and Avoid Debt
Debt can be a major drag on your finances, preventing you from reaching your financial goals. Pay off any outstanding debts that you have as quickly as possible. And once you’re debt-free, commit to avoiding debt in the future.
Not all debts are equal. Mortgages tend to have lower interest rates than credit card debt and other personal loans. For most of us, having a mortgage is necessary for owning a home. Because of this, a reasonable mortgage isn’t considered bad debt. But things like high-interest credit cards, personal loans, car loans, and even student loans should be paid off as soon as possible.
There are a few different ways to pay off debt. You can use the debt snowball method, which involves paying off your debts from smallest to largest balance. Or you can use the debt avalanche method, which entails paying off your debts from the highest to the lowest interest rate.
Related reading: Debt Snowball vs. Debt Avalanche
Whichever method you choose, the important thing is to make a plan and stick to it. Once your debts are paid off, you’ll have more money each month for saving and investing, which will help your portfolio to grow and compound faster.
If you don’t already have an emergency fund, you should start building one immediately. An emergency fund is money set aside to cover bills and other living expenses if something unexpected (like a job loss, health issues, family issues, etc.). Without an emergency fund, you’re more likely to go into debt when the unexpected happens.
As a general rule, your emergency fund should have enough money to cover at least six months of living expenses.
4. Maximize Your Savings and Investments
To grow independent wealth, you must save and invest as much as possible. If you’ve eliminated debt and you’re living below your means, you should have excess money each month that can be invested to help you reach your financial goals.
This means contributing as much money as possible to your retirement accounts, such as a 401(k) or IRA, and investing in a diversified portfolio of stocks and other assets.
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The key is to start investing early and to contribute as much money as possible. Time is one of the most important factors in growing wealth, so the sooner you start saving and investing, the better.
5. Develop a Long-Term Investment Plan
When it comes to investing, there are a lot of different strategies and opinions out there. Knowing where to start or what approach to take can be difficult.
But the most important thing is to have a plan. You need to know what you’re trying to achieve with your investments and how you will achieve financial independence and independent wealth.
Are you saving for retirement? Do you want to generate passive income through real estate or build wealth? What types of investments do you feel comfortable with? What level of risk are you willing to take on?
Answering these questions will help you develop an investment plan tailored to your goals. Once you have a plan in place, stick to it. Avoid making emotional decisions with your money,
6. Calculate and Track Your Net Worth
Your net worth is a snapshot of your financial health at any moment. It’s simply the sum total of all your assets (savings, investments, property, etc.) minus any debts and other liabilities you may have.
Calculating your net worth can be helpful because it gives you a clear picture of your financial standing. This information can then be used to develop a plan for growing your wealth and accumulating enough money. It also serves as a gauge that can be used to measure your progress toward independent wealth.
There are several different ways to calculate your net worth. You can use an online tool like Empower, or you can do it manually by adding up the value of your assets and subtracting your debts and liabilities.
Once you’ve calculated your net worth, it’s important to track it over time to see how your financial situation is changing. This information can adjust your investment strategy and overall financial plan. Checking in on your financial situation monthly or quarterly is a good idea. If you’re using Empower, it’s easy to check in at any time. With your financial accounts linked to Empower you must log in to your dashboard and check your current net worth.
7. Increase Your Income
To build wealth, you must ensure you’re doing everything possible to make more money. This may mean finding ways to earn more money at your current job, making a career change to a higher-paying field, starting a side hustle, pursuing passive income ideas, or even starting your own business.
If you’re happy in your current job, try starting there and seeing if there’s a way to increase your income from employment. You could ask for a raise or work overtime if it’s available. There may also be a possibility for you to increase your income by earning a certification or completing some sort of training.
Sometimes, the best option for increasing your salary is to look for a job with a different employer. I wouldn’t recommend this if you’re happy with your current job, but if you’ve been thinking about making a change, this could be a good opportunity to increase your income.
It’s no secret that we love side hustles here at Vital Dollar. If making more at your full-time job isn’t an option, there are plenty of side hustle ideas you could choose from to start making extra money in your spare time. If you are interested in working for yourself full-time at some point, choosing a side hustle that involves starting a business is a good idea.
Building a niche website is a great option for many people because it’s realistic even if you have no experience with online businesses. See our guide to building niche websites for more details.
And, of course, everyone loves passive income. Developing passive income streams from investments and accumulating income-generating assets like real estate and low-maintenance businesses will greatly impact your long-term financial situation.
Related reading: How to Avoid Lifestyle Creep
8. Prioritize Your Health and Wellness
Your physical and mental health are important factors in your overall well-being, and they can also have a big impact on your finances and, ultimately, on your level of wealth. Prioritizing your health means ensuring you care for yourself physically, mentally, and emotionally.
There are many different things you can do to prioritize your health. Eating a healthy diet, getting regular exercise, and getting enough sleep are all important for maintaining physical health. For your mental health, finding ways to manage stress effectively and find outlets for any pent-up emotions is essential. You might also consider seeing a therapist or counselor if you’re struggling with your mental health.
It’s also important to make sure you have access to quality healthcare. This means having health insurance, but it also means knowing where to go for medical care. If you don’t have health insurance, options are available to you, including the Health Insurance Marketplace and health sharing ministries.
9. Remain Focused on Your Long-Term Goals
You won’t become independently wealthy overnight. It’s a long-term goal, and it requires you to remain focused. Sometimes, it feels like you’re not making any progress, but as long as you stay focused on your financial goal and keep working to move forward, you’ll eventually reach it.
To stay focused on wealth building, it’s crucial to have a plan and to track your progress. Make sure you know what to do to reach your goal and break it down into smaller, more manageable steps. As you complete each step, check it off your list so you can see your progress toward wealth.
It’s also important that you find ways to motivate yourself. This might mean setting yourself small rewards for reaching certain milestones or finding a role model who has already achieved what you’re working towards. Make sure you use whatever motivates you to keep moving forward.
Independent Wealth: Perception vs. Reality
When most people think of someone independently wealthy, things like mansions, luxury cars, and yachts often come to mind. While some people fit this stereotype, the reality is that most independently wealthy people are much more down to earth.
You could live next door to someone with independent wealth and not even know it. They’re not flaunting their wealth or trying to impress others, they’re simply living their lives and enjoying the financial freedom that comes with being independently wealthy.
Most people achieve wealth through years of discipline and solid financial decisions. They’re not born into wealth or handed a trust fund, they’ve simply worked hard and made smart choices with their money.
If you want financial freedom, don’t be concerned with trying to impress others with the things you can buy. Focus on your own goals and work towards them diligently. With time and patience, you can achieve anything you want.
Frequently Asked Questions
How much money do you need to become independently wealthy?
There’s no set amount of money you need to become independently wealthy. It depends on your individual circumstances and your opinions on wealth. For most people, the minimum to be considered independently wealthy would be a few million dollars, but the specific amount could vary.
What makes an individual wealthy?
There’s no set answer to this question. Everyone has different opinions on wealth and what it means to be wealthy. For some people, being wealthy might mean having a lot of money in the bank, while for others, it might mean living a comfortable life without worrying about money or needing financial support.
How much money do most people retire with?
The average net worth for Americans between 65 – 74 years old is $266,000 (source). However, using the statistics from average Americans is not ideal if you’re looking for a comfortable retirement since most people never achieve wealth.
Final Thoughts on Becoming Independently Wealthy
Becoming independently wealthy is a personal finance goal that’s well worth working towards. It takes time and hard work to achieve financial independence, but it’s achievable if you’re willing to do the work. Start by evaluating your current situation, setting some goals, and planning how you will reach them. Then, start working towards your goals, and don’t give up. If you stay focused and motivated, you’ll eventually reach financial freedom.