Our Financial Independence Guide

Many people wonder how to become financially free and craft the lives they want without being limited by money.

Financial independence is an empowering personal goal to set for yourself and a path toward reducing financial stress. However, you need to establish a clear, consistent plan you can stick to in your daily habits.

Tower Loan offers this financial independence guide outlining the steps to financial independence to help you craft a personal journey with lasting confidence and stability.  

Step 1: Define What  Financial Freedom Means to You

Financial independence means something different to everyone, as we all have unique goals and challenges. For some people, it means living debt-free, while for others, it means retiring with enough savings to live comfortably after a career.

A key concept for becoming financially independent is to set a target amount of savings or assets you need to live comfortably. You can set short-term, mid-term, and long-term financial goals to make the journey to this number feel manageable. Example goals could be retiring at age 55 or paying off all credit card debt within two years.

Step 2: Understand a Clear Picture of Your Finances

Before figuring out where you’re going, you need to understand where you are now. That’s why one of the most essential steps to financial independence is assessing your current income, expenses, and net worth. Use a budgeting app or simple spreadsheet to get a clear view of your current financial picture.

To create a budget, abide by the 50/30/20 rule, which means 50% of your income goes to needs, 30% to wants, and 20% to savings and debt repayment. Remember, a budget is a living document you can review and adjust regularly as your situation changes.

Step 3: Pay Down High-Interest Debt and Build an Emergency Fund

As you move toward financial independence, it’s crucial to prioritize your most costly debts with high interest rates, such as credit cards and payday loans. Work on paying down these debts first using the snowball (smallest balance first) or avalanche (highest interest first) method.

It’s also wise to build a sufficient cash buffer, such as an emergency fund, covering at least 3 to 6 months’ worth of living expenses to support financial freedom. Having this cushion will protect you from an unexpected job loss, costly medical issue, or other setback.

Step 4: Live Below Your Means and Start Saving More

Among our best financial independence tips is to align your spending with your priorities and clearly differentiate between your needs and wants. You don’t have to spend more money when you start making more money, so keep your expenses aligned with your long-term goals and values.

If you can ramp up your savings and wise investments, you can accelerate your path to financial independence. Even small increases can help you reach your goals much more quickly. Consider automating your savings with scheduled transfers each paycheck to keep yourself on track.

Step 5: Optimize Your Income and Career Capital

Cutting back on expenses is an excellent way to become financially independent. However, you can also boost your earning potential by learning new skills, going back to school to earn a certification, or taking on new projects to improve your career value.

Even if your current job keeps you plenty busy, be open to side-hustle opportunities and investments that generate passive income. Having income from multiple sources can strengthen your resilience and make you less reliant on a single employer.

Step 6: Invest Wisely for Long-Term Gains

Financial freedom can be within reach if you learn how to invest your money strategically. For example, there are tax-advantaged accounts like 401(k)s and HSAs, which allow you to grow your money efficiently. Meanwhile, diversifying your investments across stocks, bonds, and other assets can help you manage risks while seizing growth opportunities.

While working toward financial independence, you’ll see early, consistent investing increases your investments’ value over time through compound interest and market timing. Make a point of regularly reviewing your investments and rebalancing when allocations drift from your targets and your comfort level with risk changes.

Step 7: Protect Yourself with Insurance and Risk Management

Unexpected setbacks can occur even when you’re following a financial independence guide precisely. To prepare for those setbacks in advance, consider health, disability, property, and life insurance policies so setbacks don’t drain the savings you’ve worked so hard to set aside. Along with this, estate planning measures, such as keeping your will and beneficiaries updated, help protect your assets and secure your wealth.  

Step 8: Review and Adjust Your Plan to Achieve the Life You Want

As you’re learning how to become financially free, remember even the best financial plan should continually evolve with your life. There are many good reasons to reevaluate your plan, such as a marriage, divorce, children, new job, or relocation.

Financial independence involves more than just having money; it’s about having the freedom to choose how you’ll spend it. Consider your priorities and how you want to spend your life — whether it involves traveling, starting a business, volunteering, or slowing down to enjoy the simple things.

The path to financial freedom isn’t easy, but it’s always worth it. So, celebrate small milestones you achieve to keep your momentum strong and your focus on future goals.

FAQ and Financial Independence Tips

At Tower Loan, we help people achieve financial independence by providing quick, convenient personal loans when life throws a curveball. We have offices across eight states and an online application process when you need a loan fast.

We also make paying off your loan and keeping up with payments easy with our mobile app.

Below are answers to some of the most common questions our customers ask about financial independence when they visit a Tower Loan office:

What if I have low income — can I still reach financial independence?

Yes! Start your journey to financial independence by saving small amounts consistently and eliminating unnecessary expenses.

How much should I save each year?

Financial advisors often recommend saving 20% of your income. But to gain financial freedom early, aim for 30% to 50% whenever possible.

When can I safely stop working or reduce my income?

When your investments consistently cover your annual expenses, it may be safe to stop working or at least reduce your income.

Is financial independence the same as retirement?

No, these two concepts can be entirely different for some people. Retirement typically means to quit working permanently, but financial independence means you have the option to work or not.

What if an emergency derails my plan — how do I recover?

When an emergency occurs, you can tap into your emergency savings account, redo your budget, or adjust your savings and debt strategies. Tower Loan can also help you with an emergency loan to cover unexpected costs so you can stay on track with your budget and savings.