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How to Achieve Your Goals Through Financial Independence

(Photo: From Canva.com)

You may not think the FIRE (financial independence, retire early) movement is for you. For many people, saving over 50% of income is simply not possible because of their individual circumstances. You too may have a family to take care of, rising costs of living, student loans and other debt, and other financial constraints that can feel overwhelming without a plan.

However, having a financial plan tailored to your circumstances and your goals will ensure that you achieve financial independence, in a way that makes sense for you.

Let’s start with how to set up financial goals!

Setting financial goals

Your financial independence goals should consider your current financial situation as your baseline, but also push you to save and invest more in the future.

Your investment goals should be:

1. Measurable

2. Reasonable and Rational

3. In alignment with your long-term objectives

Here are some examples of financial goals:

  • I will pay off $30k in student loan debt by paying $300 more per month. I can save $300 per month by bundling my insurance and going for a cheaper phone plan
  • I will increase my contribution rate on my 401(k) to 6% and reduce my discretionary expenses to match my new lower take-home pay
  • I will build up my emergency fund for 3 months of expenses by saving $500 a month by driving for Ubereats and Doordash on the weekends

Understanding your motivation

If you are reading this article, you are clearly motivated to advance on your financial independence journey. You can set up ambitious and achievable goals for yourself by understanding the motivation behind this journey and understanding how it impacts your decisions. For example, if you (like me) had the misfortune of being laid off early on in your career, your financial independence goals may be to save up for 8 months of expenses, rather than just 3 months. If you are a decade or so more into your career, saving for retirement may be a bigger priority than paying off student debt.

Once you understand your motivation, make sure you keep a record of it to refer back to later. This will also help you get to the % savings rate you need to work towards every month and what your FI (financial independence) number should be. Your financial independence number is basically the amount you need to have saved up in order to be financially independent. This can depend on many factors, such as where you live, how many people you support, how old you are, etc.

Defining your risk tolerance

Once you have your FI (financial independence) number and the % savings rate you need to accomplish it within your timeline, you can start defining your risk tolerance. Risk tolerance refers to the amount of volatility (market ups and downs) you can tolerate. Risk tolerance often varies with age, income, and financial goals.

How to invest

Once you have defined how risky you can be with your portfolio and understand the motivations behind your financial goals, you can start looking into investment options that fit your financial plan. Here are some ways to invest and save:

  1. Cash: Cash may seem like the safest choice in absolute terms and is a popular savings vehicle for that reason. However, most savings accounts, including high-interest saving accounts, simply do not pay enough interest in order to combat the loss in value due to inflation. So every year your extra cash is in a savings account that pays less interest than the current inflation rate, it loses value. We recommend keeping your emergency fund in a high-interest savings account that is easy to access and investing any savings beyond that point.
  2. Stocks: Historically, the stock market has averaged 11% returns on average, which makes stock investments a good investment for many people. While future returns cannot be guaranteed to follow the same pattern, most financial experts recommend investing in the stock market. A good formula to follow is 100 — your age = the % of your portfolio that should be invested in stocks.

If you’re new to investing in the stock market, Robinhood has some great resources and is offering free stock to people who sign up right now. Robinhood has also introduced a premium offering called Robinhood Gold that allows you to buy on margin and gives you access to market research. Brokerages like Schwab and E*Trade offer low commissions and an easy interface combined with powerful and fast processing of trades.

  1. ETFs and Mutual Funds: ETFs (exchange-traded funds) are also available on the brokerages mentioned above like Schwab and E*Trade, and give investors a chance to diversify their investments for low prices.

ETFs are funds that track indexes like S&P 500 or Russell 2000. That means that their prices go up or down based on how the index is doing on any particular day. You can buy or sell ETFs at any time during the day when markets are open through any major brokerage.

Mutual funds actually buy and hold stocks that fit into their investment philosophy, and so when you invest in mutual funds you are actually indirectly investing in the holdings of the fund. Unlike ETFs, mutual funds are only priced at the end of the day and are not traded on major stock exchanges. They are also likely to be actively managed and so have higher minimums and higher expense ratios.

Robo-advisors like Betterment are excellent for investing in mutual funds because they create a portfolio for you based on their risk tolerance questionnaire. The profile takes only a few minutes to set up and new investors can start investing in ETFs in no time.

  1. Real Estate: Despite the uncertain housing market in the COVID-19 economy, real estate can be a great way to diversify your portfolio and lock in some steady cash flow. Because of its unique characteristics, real estate investing is a big part of retirement planning. Unfortunately, not many young investors have the capital or time needed to invest in traditional real estate. This is where crowdfunding platforms like Fundrise can be a great opportunity. Fundrise lets you invest in a diversified portfolio of real estate holdings for a lower fee and lower minimums than traditional real estate.
  2. Cryptocurrency: Cryptocurrency has the potential to grow in the not-too-distant future to a major asset class, but for now it is still on the fringes of alternative investing. It does, however, mean that there is a lot of opportunity in crypto-currency for an investor who can take on additional risk. Coinbase is a trusted cryptocurrency trading platform that is easy enough for beginners to understand but powerful and flexible enough for large investors. Another option is Binance, which has an academy for education, large amounts of market research, API integration options, and much more.

Aligning your investments with your goals

How much you save and what you choose to invest in is a decision that cannot be taken lightly. Because of the thousands of pages of (sometimes biased) information available on the internet, it’s easy to feel overwhelmed by options and be paralyzed when it comes to making financial decisions. If you are looking for more sound financial advice, we recommend books such as Rich Dad, Poor Dad, and The Intelligent Investor. This is merely an introduction to financial independence to help you determine the best course and strategy for you and your family. Check out our Financial Independence section to learn even more!

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Edward Gorbis is the Founder of Career Meets World, a former engineer transformed into a sales machine. Everyone has the power to skyrocket their career and financial potential. Career Meets World provides the tools and strategies to help people find their dream job and reach financial independence.

Disclaimer: This article contains affiliate links where I may receive a small commission at no cost to you if you choose to purchase a plan from a link on this page. However, these are merely the tools I personally have used myself and fully recommend when it comes to investing in your professional development.

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Edward Gorbis

Edward Gorbis

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Helping ambitious immigrants and first-generation leaders thrive in business and life. CEO of Career Meets World.