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Financial independence is a standard of living we'd all like to achieve, but it takes hard work, smart investing, and diligent saving to get there. Most often, financial independence is based on building wealth to a point where you can live comfortably without needing to work.

Although, some people who are financially independent still choose to work but they do so because they enjoy their job, not because they're worried about generating enough income to support their lifestyle. In order to achieve financial independence, you'll need to work through a variety of factors including how much you spend and how much wealth is enough for you to live comfortably.

Determining How Much You Need

Setting goals for your future will help guide you toward financial independence. You may be satisfied with a goal of retiring early and paying off your mortgage, or you may wish to continue working later in life to build a higher degree of wealth — including a vacation home and other investments.

Do you enjoy traveling often and going out to eat a few times per week, or are you content on staying home and living with a modest budget? Knowing your own preferences can help you decide what you need to become financially independent.

Steps to Achieving Financial Independence

If you'd like to build your wealth to help you become financially independent, here are some steps to consider:

  • Pay off Loans: Becoming debt-free means you'll reach financial independence sooner because you won't need to cover as many monthly payments with the income you generate from your investments.
  • Spend Less: If you cut back on discretionary spending now, you can invest more of your income into long-term investments that build wealth.
  • Save More: Building savings takes discipline, but if you start early in your career and invest properly, your nest egg will build over time.
  • Maximize Investment Opportunities: Take advantage of "free money" if your employer offers a 401(k) match.
  • Learn How to Invest: Learn about which types of investments generate the most income and aim to build a widely diversified portfolio. Educate yourself on the risk/reward trade-offs between stocks, bonds, mutual funds, and real estate and learn to make smart financial decisions.

Think About Additional Sources of Income

If you want to become financially independent, you may not be able to rely on your current job to provide income for the rest of your life. Work situations change and you may want to switch careers at some point. In these situations — especially if you're looking to continue working toward financial independence — it may make sense to consider adding a second source of income. This may mean starting a part-time job or your own business to carry you through the ups and downs. Real-estate investing, freelancing, or turning a hobby into a weekend job can all help provide secondary sources of income.

Advantages of Achieving Financial Independence

Taking away the financial pressure associated with the need to cover day-to-day spending can ease your overall stress. Once you've achieved financial independence you'll have a reliable source of income from your investments after you stop working. You'll be able to enjoy your new lifestyle by traveling or taking more of a financial risk to pursue a long-held dream such as opening your own business or embarking on a creative endeavor.

If you'd like to learn more about investing with the goal of being financially independent one day, don't hesitate to speak with a wealth management advisor.

This information and recommendations contained herein is compiled from sources deemed reliable, but is not represented to be accurate or complete. In providing this information, neither KeyBank nor its affiliates are acting as your agent or is offering any tax, accounting, or legal advice.

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