Spending less than you earn is the key

If you want to become financially independent, you need to spend less than you earn over a long period, or start your own business, or get lucky!
The way is by living below their means.

This will generally mean eschewing those things in life which are just about within your reach – but which you can live without quite happily. In other words, this is about concentrating on what you need rather than what you simply want – and not confusing the two.

Of course, it also means making a budget and including in that budget sufficient cash for contingencies. Over an above this amount, you then need to be able to put something by each month through living a little below your means.

On the other side of the same equation, you also have to be able to invest that surplus effectively.

For most people, the simplest and most straightforward way of doing this is to buy your own home. Ignoring the fluctuations in the property market and buying the best home you can afford over a period is generally a wise thing to do, financially speaking – and we all need somewhere to live. A recent report from HSBC (see source on HSBC newsroom) demonstrates the wisdom of this over the long term.

But bear in mind that mortgage payments and payments to a pension scheme aren’t included in this living below your means approach. You also need to find sufficient money to invest as shrewdly as you can elsewhere to get yourself ever more free financially – to a point where you can retire with ease living off the capital you’ve managed to amass. So the other side of the equation is equally important; deciding where to invest the surplus exactly.

If you aren’t confident about investing money in stock markets, then seek expert advice from an independent financial advisor. Alternatively, you may decide that another property, which you can rent out, is a good idea – or some combination of the two. On the whole, it’s generally better not to hold cash beyond that which you need for contingencies etc., as property and stocks and shares generally out-perform over the longer term.

For many people, living for tomorrow is seen as boring and spending today on borrowed money is seen as the opposite. Each to their own in this regard, but you may not think it’s so boring when you’re able to do what you want with your life. And all the sports cars, mobile devices, expensive clothes and extravagant holidays you didn’t take during your 20s and 30s will pay you back many-fold when you’re a couple of decades older.

It isn’t all about being miserly – simply living within your means whilst simultaneously having a good time. It’s a simple balance – but it’s surprising how few people actually achieve it.

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