How to achieve financial independence as a family

People often strive for all types of independence in their lives, and a common goal is financial independence. Once you achieve financial independence, you no longer worry about working to earn a living and focus on doing what makes you happy.

Continue reading to learn what financial independence is, how to achieve it, and why it’s so beneficial.

What is financial independence?

Financial independence can mean different things to each family, but the consensus says it’s when you no longer need to work to support yourself. Essentially, you’ve built up enough savings to live off of or can live off the interest that savings generates. 

For example, say you have $40,000 in annual living expenses, have saved $1 million, and average a 4% return on that savings annually. You earn $40,000 in interest annually, meaning your expenses are covered, and you’ve now achieved financial independence.

As we mentioned, though, financial independence is a personal thing, so different opinions on it exist. According to a Savant Wealth survey, 65.35% of respondents agreed with the above definition of financial independence. However, others felt financial independence meant:

• Having enough money to spend how they want without feeling guilty

• Being debt-free

• Having enough in their savings to equal 25 times their annual spending

Despite these variations in the definition of financial independence, one theme is consistent: You’re free to do as you please within your budget, whether you choose to go to school, start a business, travel the world, or sit on a beach.

How do you achieve financial independence?

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Now that you understand what financial independence means, it’s time to figure out how to achieve it. Each family’s path to financial independence will differ slightly, but these nine tips will help put you on the right path toward becoming financially independent.

1. Set your goals

Start your path to financial independence by setting up life and personal finance goals. Sure, your overarching goal is to become financially independent but focus on the smaller, more bite-sized goals that can help feed your long-term goal.

When setting goals, it’s important to ensure they are attainable and have a realistic deadline. By setting goals that are too aggressive, you may miss your targets and get discouraged.

Some examples of small but meaningful goals include:

• Maxing out 401(k) contributions

• Investing 15% of take-home pay

• Paying off credit card debts

• Investing 100% of any bonuses

2. Set a budget to live below your means

Probably one of the most important first steps in becoming financially independent is setting a budget. A budget helps you keep your spending on track and build your nest egg.

Look at your family’s monthly income compared to your monthly expenses to determine if you have extra money after covering all your current spending. If so, that’s a good start. Then, see if you can tighten things up further by cutting unnecessary expenses, so that you have even more money left over each month. 

You may realize during this exercise that you don’t have money left over after expenses or you’re spending more than you earn. You’ll then want to find ways to adjust your expenses so you have extra money after expenses. Another option is to pick up a part-time job or start a side hustle to help you get ahead.

You can create and monitor your budget in various ways. You can invest cash into an advanced online budgeting app that automates most tasks, simplifying the process. But you can also go a simpler route, such as old-fashioned pen and paper or the envelope method.

3. Get out of debt

After you’ve set up a budget and trimmed expenses to the point where you have some surplus, use that leftover cash each month to pay down your credit card debt and any other consumer debts you have.

Paying off your debt will help to lower your monthly expenses, freeing up more money for your savings or investment strategy.

4. Create an emergency fund

A large part of financial independence is not worrying about cash when a financial emergency strikes. This is where an emergency fund — typically three to six months of living expenses — can help. If your family experiences a job loss, illness, or any other emergency that impacts your cash flow, this fund will help you cover it.

You can build your emergency fund by channeling some of your surplus cash each month into a savings account until you reach a three- to six-month balance. And then, just let the money earn interest in a savings account until you need it.

5. Invest for retirement

With all your budgeting, debt repayment, and savings planned out, it’s time to start investing for your retirement. The rule of thumb is to invest 15% to 25% of your take-home income.

One option is to take advantage of any retirement plans through your employer. If you’re a full-time employee, your employer may offer a 401(k) plan that allows you to invest in the stock market with pretax dollars.

Plus, your employer may contribute to your 401(k) through a matching program. For example, they may match 100% of your contributions up to 5% of your salary. So, if you earn $50,000 per year, your employer will match up to $2,500 of your contributions annually, which is essentially free money.

Another retirement plan option is an individual retirement account (IRA).

6. Help your kids save for college

Financial independence can be generational too. You can spread the cheer of financial independence to your kids by setting up an educational savings account (ESA), 529 savings plan, or another account to help them pay for college without resorting to student loans. 

This will allow them to get the education they need to land a good job without going into debt, setting them up on a path toward financial independence as well.

7. Pay off your home early

Your mortgage payment is typically one of the biggest expenses every month. Imagine how financially liberating it would be to no longer have that payment. 

You can pay off your mortgage early with a wide range of strategies, including making two payments a month, an extra payment a quarter, or just adding a little extra to every monthly payment. Those extra payments can add up quickly and knock years off your loan term.

8. Create passive income

Passive income is cash flow that comes in without you having to spend much time working to earn that money. Some examples of passive income include rental properties, annuities, stocks and mutual funds, bonds, and even affiliate marketing.

9. Hire a financial advisor

A financial advisor can help you make investment and financial planning decisions that are specific to your family’s situation and goals. Since there are risks with investing, it’s good to have the guidance of a professional.

What are the benefits of financial independence?

Financial independence comes with a number of benefits, including:

• You can consider early retirement: Once you’re financially independent, you don’t have to retire. If you absolutely love your job, you can continue working until you’re ready to hang it up. However, being financially independent presents early retirement as an option because you no longer need your income. This is a big driver in the FIRE movement (financial independence, retire early).

• You may have less stress: Money is a common stressor for people, but once you’re financially independent, this stress is removed from your mind. You know you're fine if you lose your job tomorrow or have a financial emergency. That peace of mind is invaluable.

• You’re the boss: Once you’ve achieved financial freedom, you are the boss of your life. You can live all the dreams you’ve had, such as diving into a hobby full time or traveling the world. It’s truly a liberating experience.

Your path toward financial independence can start today

You can start on the path of financial independence by creating a budget and trimming expenses so you have extra money each month. From there, you can start getting out of debt, saving, and investing to help you meet your goals. Once you’ve attained financial independence, you’re free to do what you love and live your life how you choose.

Want to help set your kids up for financial success? Download the Greenlight app. With the Family Cash Card, the whole family earns up to 3% cash back on all purchases.* No categories. No limits on rewards. No kidding. Plus, with the debit card from Greenlight, your kids can earn Cash Back to Savings** on every purchase.

*Greenlight + Invest families can earn monthly rewards of 1% per annum, Greenlight Core and Greenlight Select families can earn 2% per annum, Greenlight Max families can earn 3% per annum, and Greenlight Infinity families can earn 5% per annum on an average daily savings balance of up to $5,000 per family. Only Greenlight Max and Infinity families can earn 1% cash back on spending monthly. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time.

**Earn 3% when you spend at least $4,000 in a billing cycle, 2% when you spend at least $1,000 but less than $4,000 in a billing cycle and 1% when you spend <$1,000 in a billing cycle. See the Credit Card Rewards Terms and Conditions for details, including earning, redemption, expiration or forfeiture.