How to Become Financially Independent During a Recession
Given that we are in the deepest recession in a generation, it may seem like an especially difficult time to become financially independent. However, financial independence should not be a goal but a state of being and regardless of whether it is the best of times or the worst, there are some basic principals you should follow in your financial life that will help you become financially independent and stay that way.
Financial Independence Defined
The first step to become financially independent is knowing what it means. Financial independence means that you can pay for your basic needs: food, shelter, and necessities (e.g., transportation). This may make it slightly different for different people. If you have a medical condition that requires you to take a medicine then you should be able to pay for that out of your own expenses.
The basic test should be: could you survive without this particular thing? So, food would be a necessity definitely. Shelter is less of a necessity in mild climates, but I would include it as a part of financial independence because it is so important to health and to maintaining the job that allows you get food on the table. Similarly, you might find that your list of necessities is broader than just food and shelter. This is fine so long as you are reasonable and don’t include things like “going to the movies” among your necessities.
Live Within Your Means
This may seem obvious, but it is amazing how many people don’t know what their basic expenses are. Make out a list of all the things you MUST spend money on every month in order to become financially independent. Include the amount you spend on food, gas, rent, utilities, the telephone, internet, school, debt payments etc.
Now list the amount you make at your job every month. Hopefully, you know how much you make already and that the amount you make is more than the amount you must spend. If you make more than your basic necessities then the difference is how much you may spend while staying financially independent. If its not, then you will need to find a less expensive lifestyle.
Cutting Down on Necessities
You cannot, of course, stop eating or start living in your car, but you can find cheaper ways of getting your necessities. Often people are stuck in lifestyles that they simply can’t afford, but if you are really committed to becoming financially independent and you are spending more than you make, you will need to cut back. You should, of course, start by cutting down on the extras, like expensive gifts and long vacations. But once you run through those, you might consider how you might be able to reduce the amount you spend on your basics.
Cut down on eating out. It is always more expensive. Pack a homemade lunch for work. Cut down on expensive foods and look to buy the cheaper ones—this usually means less frozen foods and more preparation.
Consider moving to a place with cheaper rent that is closer to your work. Many people get stuck commuting long distances and paying higher rents for their troubles. Reducing your distance to work and your rent can lower overall expenditures in ways you might not even consider. In fact, if you reduce the distances between work and home you may be able to get rid of your car or make yourself a one-vehicle household, which will cut out a huge expense.
Focus on Reducing Debt
The second major thing you can do to help yourself become financially independent is to focus all extra money into reducing debt. One of the main things that can hold you back from financial independence in long-term debt, so if possible you want to chip away at your debt starting with whichever source has the highest percentage rate.
Credit cards should be used only for true emergencies like fixing a broken car or paying for medical emergencies, not for buying presents or going out with friends. In addition, you should pay credit down to zero as soon as possible.
If you take these two measures, you will be well on the way to financial independence. The next step should be setting up a retirement fund.