If you’re reading this post, you’re probably into the idea of financial independence. Who isn’t, right? But before you start working toward this goal, you should first understand why you want it. What exactly do you want to achieve? What does financial freedom actually mean to you? 

Perhaps you’re seeking it for health or well-being. Financial independence can mean freedom from job-related stress and financial worries. Or maybe you want to feel secure about your ability to afford a hospital bill if you or a loved one falls ill. 

Maybe you, like many others, are concerned about job security. Are you worried your boss doesn’t like you? Are you in a cut-throat industry and afraid a colleague might (figuratively) stab you in the back? Does your position mean a company merger could result in you being made redundant? Perhaps, generally speaking, job security just doesn't seem as easy to come by as it used to. Financial independence would give you the freedom to work not because you need to but because you want to. 

Or maybe you’re looking at the state of the world and the economy right now, and are worrying about a possible recession. Well, financial independence would give you the means to ride out that storm. 

Of course, there are many other reasons you may be seeking financial independence. You might want to make your parents proud, for example. Or maybe you’d like to spend more time with your children or not work for a company that stands against your principles. 

This post explores some of the considerations you should be making in your quest to achieve financial freedom. It answers questions like, How should I allocate my savings between financial assets? How much should I invest in real estate? What about my car? And, perhaps surprisingly, Where does love fit into the equation? 

Tackle your debts, and avoid the temptations of buy-now-pay-later offers. 

Take a moment to think about your monthly income and how you use it. How much are you able to save each month? What are you doing to leverage your income toward achieving financial independence? What is financial independence? 

First things first. Experts define financial independence as being one of two things: either you have a net worth that’s 20 times greater than your average gross income, or you have sufficient investments to generate enough passive income to cover your expenses. Ideally, you have both. 

How soon you become financially independent depends on the work you’re willing to put in, how much you save and invest, and how much risk you’re prepared to take. Again, think about your savings: if you can save 50 percent of your after-tax dollars, that’s the equivalent of one year’s living expenses. Seventy percent gets you two years’ living expenses. And if that’s simply not an option right now? At an absolute minimum, save 20 percent, and you’ll have one year’s living expenses within four years. The wise choice is to save and live frugally in your early years to reap the rewards later. 

You need to earn, save, invest, and plan if you’re going to achieve financial freedom. But before we get into how to invest, we first need to tackle a thorny subject: debt. 

Many of us get into debt because we try to live a life we simply can’t afford. Buy-now-pay-later offers are around every corner, tempting us to skip the hard work and go straight for the rewards. But giving in to them is a surefire way not to achieve financial independence. 

Of course, debt is sometimes unavoidable – there’s a catastrophe, unexpected medical costs, or, as a single parent, your finances are just stretched too thinly. But if you’re serious about your quest for financial freedom, paying down debt must be your top priority. 

Where do you start? Credit cards. Average APRs are around 15 percent, but some are as high as 29.99 percent. So pay off your cards immediately, and only use them for rewards and insurance. Never ever carry a balance forward – you’ll just find yourself being ripped off by the credit card companies. 

Next, you should tackle your car debt. Your car depreciates in value every month – even if your car loan interest rate is low. Follow “the one-tenth rule for car buying.” That is, don’t spend more than one-tenth of your gross annual income on purchasing a car. After all, driving around in your five-year-old, more-milage-on-the-clock-than-I-care-to-mention hatchback won’t kill you until you can afford to buy your spiffy, new car outright! 

Third, get your student loans cleared. If you haven’t yet been to college and would like to pursue a degree, choose a school that’s affordable. That way, you can pay off your loan within four years of graduating. 

Design an investment strategy that will maximize your wealth potential. 

Like with most things in life, you need a plan if you want to achieve financial independence. It’s important to consider where and when to invest your savings to maximize your wealth. The more you save, the sooner you’ll achieve financial independence. You should also contribute the maximum to your country’s tax-advantaged retirement accounts and, at the same time, build up your taxable accounts as much as you can. 

Where to put your money depends on your life stage and circumstances – but aim to own stocks, bonds, and real estate. Put a small amount of your savings into risk-free assets as an “emergency fund” too. Later, if you want to diversify, consider alternative investments such as art, wine, farmland, cryptocurrencies, and collectibles. 

Experts offer three allocation models for consideration, depending on your personality and age. 

The first model, Conventional, is a low-risk option. Invest in stocks, bonds, real estate, and risk-free assets. This is great for those who are fine with working until their state retirement age. 

The second, New Life, is more aggressive in its risk-taking. This is for people who want to start life anew when they reach the age of around 40. Consider some alternative investments – perhaps venture capital, private equity, and cryptocurrencies. 

The third model, the Financial Samurai, is the most aggressive. Here, you invest in yourself, build your own business, and, as a consequence, find financial freedom at an earlier age. Start creating some passive income streams while you’re in your twenties. And get a side hustle going that’ll generate enough money to pay for your basic living expenses. 

Whichever model you choose, you’ll most likely have built more wealth than the average person by the age of 60. Remember, though, your financial returns are not guaranteed. The trick is to diversify in order to cope with economic downturns and recessions. Here are some general rules: Don’t have more than 50 percent of your net worth in any single asset class after the age of 40. And after you’ve built your wealth, switch to capital preservation. 

Now let’s return to real estate and take a closer look at your options. 

First and foremost, it’s important to remember that you’re pursuing financial freedom here, so your optimal choice may not be the prettiest – the cheaper town apartment might be the choice for now, as opposed to the country cottage.  

Consider renting only as a short-term solution to your housing needs. It allows you to keep your options open while you’re establishing your career and deciding where to live. But once you’ve identified that you’re going to be in one place for five years or longer, you should buy. 

And how much can you spend on your principal home when you’re ready?  

Experts have developed the 30/30/3 home-buying rule to ensure you don’t overspend. First, you should spend a maximum of 30 percent of your gross income on your monthly mortgage payment. The smaller your income, the more important this is – if you spend more, your available funds for other things will be severely squeezed. 

Second, make sure you have 30 percent of the value of the home saved in cash or semiliquid assets. Two-thirds of that is for a down payment. The other third is your cash buffer in case of unexpected difficulties. Avoid any temptation to make a down payment of less than 20 percent. Homeowners who do this and don’t have a buffer suffer most in a recession. 

And third, don’t spend more than three times your annual gross income on your house. So if your income is $100,000, don’t exceed a purchase price of $300,000. This will keep your monthly payment within your means. 

Owning real estate beyond your primary residence is also a great way to build wealth – but apply the 30/30/3 rule to this purchase too. Real estate usually outperforms stocks and bonds during a downturn, and when there’s a robust economy it benefits from rising rents and property prices. Consider the effect of the COVID-19 pandemic, for instance: stocks collapsed in March 2020, but real estate values were steady. Then, as the outlook improved, there was a boom in real-estate demand. 

Achieve financial independence earlier by optimizing your career and getting a side hustle. 

When you’re young, your career fuels your ability to invest – which in turn generates more cash and eventually leads to your financial freedom. Ideally, you want a well-paid job that you love. But if you can’t find a job you love, make sure that you’re at least well-paid for what you do. You can always do the things you love in your own time. 

Use the first 21 years of your career to build the best foundation possible. This will then give you more options when you’re in your forties. 

If you’re just starting out in your career, look for a job in a lucrative industry and work hard to get good at something. If you’re still in college, find a course that will give you a qualification to work in a high-paying industry – optimally, one that pays six figures straight out of school or will do so within five years of joining. Industries that do this include venture capital, investment banking, strategic consulting, IT, engineering, real estate, and oil. Also, don’t forget to look at the future pension arrangements that jobs offer – especially in the public sector. 

But high-paying jobs are highly competitive. You probably only have a 1 percent chance of getting an interview. And after the interview, you might have a 25 percent chance of getting the job. So apply, apply, and apply again until you get the job you want. 

If you find yourself in a low-paying job or in a situation where you can’t leave or switch jobs, it’s time to get your side hustle on. 

An expert has a mantra he’d like all financial freedom seekers to embrace: “Work while others are sleeping so you can eventually play while others are working.” Your job is likely to be your main source of income, so you should maximize that through promotions and raises. But you also need a side hustle to speed up the journey toward financial independence. 

Your side hustle can be big or small. If you’re a morning person, get up a couple of hours earlier to work on it before you go to work. If not, work on it in the evening. Two hours per day gives you over 700 extra productive hours each year. Although it’s never too late to start, ideally you want to start your side hustle when you’re young; your energy may wane as you get older. But what can you actually do? 

Well, you can join the “gig economy” by getting a second job – whether it’s a freelance or contract gig – that you can do outside your normal working hours. It can be physical, such as a night-shift at McDonald’s, driving for Uber or Lyft, or delivering packages for Amazon. Or maybe it’s online, like designing logos for startups, freelance writing, or doing voice-over work.  

With all of those examples, though, you’re still working for someone else. Better yet, find a long-term side hustle building something of your own – your own brand. For example, instead of teaching piano one-on-one or giving group lessons online, you can create a set of piano lessons under your own brand name. You can then sell your course to others without having to do extra work. 

Eventually, your side hustle might even become your main hustle. The right time for that is when you are sure of two things: you truly enjoy doing it, and you make enough money to cover your basic needs. 

Get yourself an education, and don’t forget about love! 

Let's turn our attention to education and love. Let’s look at education first. More than anything else, education sets you free. It helps you make choices in terms of your career path, investments, and life partner. It also helps you build your business and feel more confident. Ultimately, it helps you be happy. 

It doesn’t have to be formal education – you can find a lot of free courses online. You can even learn from people who disagree with you. What’s key is to be open and in a continuous learning mode. There’s always something new to learn! 

If you’re considering getting a degree, remember that it’s not so important to go to a prestigious school. Yes, it may give your parents something to brag about – and when you’re fresh out of school, hiring managers may be more impressed. But, after a few years of experience at work, nobody cares anymore; they have your track record to go on. The bottom line is that you should go for the best school you can afford – but don’t get yourself into six figures worth of student debt just to improve your chances of getting a job out of school. 

Let’s turn to love now. Here’s the all-important question: Would you rather be rich and alone or poor and in love? You don’t actually have to answer that! Neither situation is optimal. It’s much better to have money and spend it with your partner – and eventually maybe your kids. 

The truth is, we need money just as much as we need love. Without it, we might find ourselves financially strained. And when it comes to having kids, we’d stress over whether we could give them the opportunities we want for them. Sadly, it’s also a fact that 36 percent of all divorces result from financial woes. 

But there is good news: you can have both love and money. If you’re single, make finding a life partner your priority. If you already have one, nurture your relationship – every day! And remember that if you truly love someone, you’ll want to help them become financially independent too. 

Having found love, your next question might be: Should we get married? If you look at it from a purely financial viewpoint, there are two things to consider: tax and social security. High earners – those with $500,000 combined income – could have an income-tax penalty, so it may be better to cohabitate. But rules change from time to time, so check in with your tax advisor. And don’t forget that being married may offer more financial benefits when it comes to collecting social security – especially if one partner dies. In that case, the surviving spouse continues to receive the deceased spouse’s social security benefits. 

If you do decide to get married, keep the wedding costs down! Experts suggest spending no more than either 10 percent of your combined income, 3 percent of your combined pretax retirement plans, 50 percent of your combined side-hustle gross income, or 10 percent of your annual passive investment income. A final alternative is to spend as much as your parents want to spend. After all, why would you turn down their generosity? 

When it comes to bank accounts, the optimal setup is to have both joint and separate accounts. Having your own separate account gives you some independence to spend what you want; it also acts as an insurance policy in case of an event that ties up your spouse’s and joint assets in probate. 

And, finally, what about kids? Experts say that if you want kids, the optimal time to have them is when you’re both financially and emotionally stable. Taking into account both biology and economics, he believes that’s around the age of 32. But, in any case, you must have your finances in order – otherwise, you’ll be constantly worried and exhausted (not to mention stressed)! 

When your kids grow up, by all means help them financially. But charge interest, and set a target for when they should pay you back. When they’re ready to return the money, that’s when you can decide to forgive the loan – not before. Let them be proud that they too were able to make it on their own. 

To become financially independent, start by identifying your why – this will help you focus your efforts. Second, pay down your debts, beginning with your credit cards. Third, remember the rules for buying a car (spend no more than 10 percent of your annual income on it), and the 30/30/3 rule for purchasing a house (mortgage payments should be no greater than 30 percent of your monthly income; save 30 percent of the purchase price for the down payment and buffer; and don’t spend more than 3 times your gross annual income on it). And fourth, make room for love – after all, what is wealth without someone to share it with? 

Action plan: Follow the 70/30 philosophy of decision-making. 

We often don’t have enough information to make confident decisions. But if we think in terms of probability rather than binary absolutes, we not only develop a stronger decision-making mindset but also become more likely to make winning decisions. 

So what is the 70/30 philosophy? It means that if you can predict that a decision has at least a 70 percent chance at success, you should go for it. At the same time, it’s realizing that 30 percent of the time, your decision will be suboptimal – and you’ll have to live with the consequences of that decision. 

If you adopt this philosophy, you’ll still undoubtedly have some regrets along the way – but you’ll learn from them. And, in the long run, your decision-making will almost certainly be more profitable.