A Two-Step Path to Financial Independence

If you are interested in financial independence, whether you want to see if you can accumulate enough capital for early retirement, or simply want the financial stability that allows you to live on your own, there is a two-step route to achieving this goal. …

First, as CNBC reminded us recently, you will need to calculate your net worth, which in theory can be done in 30 minutes.

A lot can be done in half an hour. Have a drink of your favorite sitcom, take a nap, or read a chapter of a book. You can also take the first step to financial independence in less than 30 minutes.

Do you know your net worth?

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Your net worth is essentially the sum of all your assets minus your liabilities. Your assets can include cash, cars, houses, retirement accounts, investment properties, and other valuables such as art and jewelry. Your liabilities are long-term debts, mortgages, student loans, credit card balances, and other personal loans. Figure out the difference between what you have and what you owe . This is your net worth.

If you’re using personal finance software like Mint, YNAB, or Personal Capital, it probably won’t even take half an hour. I am using YNAB and my current capital is $ 169,423.03. This is $ 60,482.37 more than it was in May 2019 when I last wrote about my capital for Lifehacker.

This brings me to the second step on the road to financial independence, which, of course, is figuring out how to increase your net worth.

Maybe for this you need to figure out how to make more money.

Maybe this means figuring out how to cut costs or pay off debt.

Maybe this means avoiding – or even selling – some of the classic consumer products that appear to be assets at first glance, but are actually liabilities. (I’ve lived in Cedar Rapids, Iowa for a little over two years and still haven’t bought a car.)

But in reality, beyond the platitudes of “make more, spend less” – which I know are easier said than done – it’s more like asking what kind of life you want to live .

And then ask yourself how much such a life might be worth, and what it won’t be . What costs to include and what to skip. What you may need to start saving for after a year, five and ten years.

Find out what this life is worth to you, and then start building up your net worth to match it.

In my case, FIRE calculators assume that I will be completely financially independent while maintaining my current standard of living when my portfolio reaches $ 500,000. Whether or not that turns out to be true (and I’m leaning towards it, it probably won’t be true ), I can’t imagine a situation where saving $ 500K would end up being financially bad for me, so I keep working on it, whether it takes the five to seven years that FIRE calculators predict, or it takes a little longer.

Because working to become financially independent is actually two steps, over and over, and you only need to do them one at a time.

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