This article originally appeared on Arrest Your Debt and has been republished here with permission.
Are you tired of living paycheck to paycheck or relying on others to live a comfortable lifestyle?
With a plan and determination, you can become independently wealthy and live life on your terms. Most people aspire to achieve financial independence, but sometimes it seems more like a dream than a possibility. In reality, the independently wealthy lifestyle is achievable for teachers just as it is for entrepreneurs.
In this article, you will learn how to handle your money to create wealth–on your terms.
What Does It Mean to Be Independently Wealthy?
Being independently wealthy means you have enough money you never have to work again to pay for your expenses, or need monetary support from others.
Independent wealth is different from financial independence. Financially independent people do not rely on other people to pay their bills–they have a steady income from employment, business, or passive income streams.
When you are independently wealthy, you not only pay your bills without help, but you also do not need to work to earn any additional income.
How much money do you need to be independently wealthy? This number is different for everyone and is entirely dependent on your dreams and aspirations in life. It could mean you have millions of dollars earning interest, or a few hundred thousand. It depends on the lifestyle you prefer.
10 Tips to Become Independently Wealthy
1. Be Financially Disciplined
Financial discipline helps you take control of the money you earn. If you never control how you spend your money, you will never have enough to be financially free.
2. Create a Monthly Budget
Your finances and future spending plan will make more sense when you write out a budget every month. Instead of spending money and wondering where it went each month, complete a budget to tell your money where to go.
A budget is not a tool for people living a frugal lifestyle. Even millionaires complete monthly budgets, and it might be one of the principles that drove them to their millionaire status.
3. Have an Emergency Fund
An emergency fund covers you if your car breaks down, you lose your job, or you have any other financial emergency. Instead of taking a loan to cover the unplanned expense, you will have enough money in your emergency fund to pay cash for the fix. This way, you will not need to delay your plan by putting more debt on a credit card or taking out an expensive payday loan.
Using credit cards or a loan to pay for emergencies is not always the best idea. You may not have paid the previous debt in full before the next emergency hits. Again, you will have to pay interest and fees that dent your wealth.
Financial discipline is a decision. It takes effort and will not always be easy, but you will do it if you have the determination. Keep your eyes on the goal, and you will have the motivation to do it.
4. Make Savings A Priority
If you pay bills first, you will always find it challenging to save. If you save, then proceed to pay bills (pay yourself first), you will have established a saving culture that will help you later in life. You need to have a long-term goal focused on increasing your savings.
When you receive your paycheck, you should automatically save 15 percent before planning out your monthly expenses.
Your savings should go into an account that gives you interest every year. An employer-sponsored retirement plan is usually your best option before a Roth IRA or other retirement investment plan. With time, the savings will earn you passive income, which will contribute to your independent wealth.
5. Avoid Debts
While some debts, such as a small business loan, can help you start a business and build wealth, bad debts will cripple your dreams to become independently wealthy. Consumer debts, such as credit card debt, have high interest and will keep you from growing your wealth.
Credit cards, payday loans, long-term loans, and mortgages all have one thing in common–interest. By the time you repay your loan, you will have paid the lender a lot of your hard-earned money.
Debt has a way of creating a snowball that continues to get bigger and bigger. To free yourself from the downward spiral of debt, you need to stop adding to your existing debt.
If you have consumer debt, come up with a plan to pay it off fast. If you are currently debt-free, do everything in your power to stay this way.
The easiest way to avoid debts is to live within your means by spending less than you make each month. For most people, when their income increases, they increase their lifestyle and spending, also known as lifestyle creep.
If they are unable to sustain the new lifestyle, they apply for a new loan. However, if you increase your income, the first step should be to increase savings and investments.
You can have a celebration or two for your hard work, but don't reward yourself by increasing your debt.
6. Calculate Your Net Worth
Today, your net worth might be a negative number. However, that number should motivate you to grow your wealth. The misconception with most people is that calculating net worth is only for rich people.
Calculating your net worth allows you to understand your current financial position. In turn, this helps you to make better financial decisions with a clear picture of where you are to where you want to go. You will see your wealth grow from a negative number to a higher number as you grow your investments and pay off your debts.
Your net worth might be negative for many years, especially if you have a mortgage on your house. However, with hard work and determination, you can move your net worth number higher and faster than you may realize.
7. Invest Your Money
If you earn minimum wage and do not invest, it will take you decades to build wealth–if at all. Minimizing your risk will help you build wealth faster. The risk here doesn't mean you go for pyramid schemes and avenues that promise millions overnight.
8. Learn New Skills or Hone Your Current Skills
Investing in yourself is one of the best ways to build financial wealth. Hone your career skills or invest in learning new skills to stay ahead of the learning curve. You can also learn more about finances and how to manage your money.
With additional knowledge, you will increase your chases for career advancement, which will allow you to invest more as you make more money. You will also have access to opportunities that others do not.
9. Increase Your Cash Flow
The easiest way to increase your income is to get a side hustle. You can learn a few skills and apply them to a side job. Side gigs will help you raise extra money to add to your savings account.
Besides taking a side gig, you can increase your income by asking for a raise. Your current career can help you earn more every year. How would it feel to move from making $70,000 a year to earning $120,000 a year? It would boost your income and your dreams of becoming independently wealthy.
However, you have to put in the effort to show your superiors you bring enough value to your employer to deserve a raise.
10. Invest in Your Family and a Home
Would you rather rent or buy a home? This is a debate that sparks different views, and there are good cases for both renting or owning a home.
However, homeownership is one of the most reliable investments you can make. Not only can it help you increase your net worth, but it can also provide financial security and safety for an unstable future economic time. If you are old and unhealthy with no one to take care of you, you can sell your home and get enough money to fund a nursing home.
While a home mortgage may initially push your net to the negative, the long-term advantage of a paid-off home will help you quickly increase wealth because a home appreciates. Even if you never sell it, you can leave it to your children as an inheritance. It can be a great starting point for your children to build their own wealth.