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What Does Financial Independence Mean For Women?
Financial independence for women, in a word, means empowerment. It describes a state of being where you have enough passive income from the assets you own to cover everyday living expenses, without the need to work for a living. It provides choice, options and taking control of your life, so you are not reliant on anyone else when it comes to making financial decisions and taking action that best suits you.
The Benefits of Financial Independence
Why is financial independence important? Rather than traipsing off to the office and working for money, financially independent women have their money working for them. So they can devote their time and energy to what matters most to them, whether that is more time with family and friends, looking after their physical and emotional well-being, pursuing a career that aligns with their true calling or focusing on a passion project. Financial independence provides a sense of pride, accomplishment and positive self-esteem. It means that money is not a motivating consideration in any relationship, and you can be on your merry way should any personal or professional situation no longer serve your interests.
“If you obey all the rules, you miss all the fun.” KATHARINE HEPBURN
Financial Independence: How Much Is Enough?
The amount of money required to achieve financial independence will depend on your personal circumstances and what living comfortably means to you. Generally speaking, you can expect your assets to generate a return of 7% each year. Allowing for 3% inflation annually, you could withdraw 4% from your portfolio for it to last through retirement.
This means that you need to have 25 times your annual living expenses invested in income generating assets to be able to call yourself financially independent. For example, if your outgoings are $60,000 per year, you will need to have $1.5 million invested to cover your costs. If you can trim down your expenditures, you will of course reach your financial independence number faster.
How Can I Become Financially Independent?
So how are financially independent women getting ahead? While the path to financially independence will be different for everyone, it generally requires you to develop a plan that revolves around:
- taking control of your financial affairs,
- getting a handle on how much you need to live on comfortably,
- spending less than you earn,
- setting aside money regularly and investing it in income generating assets such as property or shares, and
- staying the course to consistently increase the cash-flow generated from your investments.
Actionable Steps to Become Financially Independent
Working towards the goal of financial independence can reap benefits not only for the future but also by helping you become clear on your financial situation today. So how do you get started?
Understanding where you are now is key: how much money are you making, spending, saving and investing? Creating a budget that tracks your income and expenditure is an integral piece of the money puzzle: play around with different options until you find something that suits you and will help you stay on track.
Thinking ahead, how much income will your assets need to generate to support the lifestyle you imagine for yourself? Are you the queen of thrifty living or do you love the finer things in life? From here you can develop a plan that involves setting money aside each month to invest to build towards an asset portfolio that will support your desired lifestyle. Rather than trying to do everything at once, it can feel more manageable and satisfying to break down your plan into discrete and measurable financial goals you can track as you take control of your money.
If you can’t see it, you are less likely to spend it. To this end, automation is a powerful tool when it comes to staying accountable: once you know how much you can save and invest, consider options to automate the process. For some women, this might involve setting up recurring payments into a high-interest savings account to channel into investments or auto-investing a portion of their income directly in shares through one of the low-cost online platform options that now make investing a breeze. Are you due for a salary raise at work? Avoid the temptation of lifestyle creep by funnelling any additional income directly into paying down any debts or building your savings and investments.
Checking in regularly and optimising your plan as you go is an important ingredient for success. As with most things in life, it is easier to stay the course and navigate the challenges that inevitably come along when you have an enthusiastic support crew cheering you on. Gathering a group of like-minded women around you will allow each of you to share your dreams, goals and strategies as you work towards financial success.
The Big Picture: Financial Independence as Part of Your Lifestyle Design
While working towards the goal of financial independence is great, remember that it forms only one pillar of good lifestyle design. It can be tempting to work furiously towards achieving financial independence only to arrive at your destination and discover you don’t quite know what to do once you get there. Remember that getting on top of your financial affairs and having clear money goals can in itself be enormously satisfying and motivating: many women find that their entire outlook and approach to life improves significantly once they embark on the path to financial independence.
You are more likely to stay the course if you are actually enjoying the journey. The goal of financial independence should not exist in isolation from your overall life plans: there are many options you can consider as you build towards the life of your dreams, including changing jobs, freelancing or consulting as part of a portfolio career, volunteering your time, undertaking further education, taking time out for a sabbatical, or starting a business that aligns with your true interest and passions.
Here’s to an inspiring, adventurous and fulfilling path to financial independence!
This information is intended to be of a general nature only and should not be treated as specific investment advice on any particular matter. You should seek professional advice that takes into account your own personal circumstances before making any financial decisions.
