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Most of the time, women are not centered in financial conversations. We’re more likely to be taught how to save money and pinch pennies than grow our wealth. But, that’s absurd. Women have just as many incentives as men to invest in their future, and build wealth for a better life. Women, so more than ever, need to strive for financial independence. Here’s how to get started.
What Is Financial Independence?
Financial independence is the ability to live off of means you’ve acquired for yourself, without needing to rely on a job. You’ve spent time and energy amassing wealth to protect you from life’s misfortunes and you no longer need to work. You may still choose to work, but you don’t have to. Financial independence can be a way to bring gendered financial equity.
Steps That Will Make Every Woman Financially Independent
While you can’t become financially independent overnight, you will become financially independent if you stick to a financial plan. Becoming financially independent is a process that will take years. How many years will it take?
Some financially independent women have achieved it in five years, like Purple from the blog, A Purple Life. Kitty from Bitches Get Riches is retiring at 35. For others, it takes longer. There’s no right or wrong way to achieve financial independence. Personal finance is personal, and you’ll have to decide what works for you to reach financial freedom and increase your net worth.
Start by Improving Your Financial Literacy
The first thing you’ll want to do is ensure that you’re financially literate. Do you budget well and are you capable of saving money? If not, it’s going to be harder to achieve financial independence.
If you’re having trouble budgeting, try using one of the popular budgeting systems, like the envelope method or the zero based budgeting method. There’s also plenty of budgeting apps that can make this process easier. One of our favorites is You Need A Budget.
If you’re having trouble saving money, try automating your investments. It’s easier to save money if you’re not part of the equation. Let technology do the heavy lifting for you.
I’ve personally found it helpful to have a personal accountability partner. We check in with each other a few times a month to see how our spending is going and to ensure we’re on track to meet our goals. We also track our spending together. Peer pressure, if used correctly, can be a powerful tool.
Figure Out Your Financial Independence Number
Next, you’ll want to create a financial plan for achieving this goal. You can work with a financial planner or build your own plan, if you’re comfortable with that. Either way, you’ll want to make sure that your financial goals are achievable.
If you choose to build your own plan, start by saving an emergency fund. That should be 3 to 6 months worth of assets in cash.
Next, you’ll want to follow the 4 percent rule and build SMART goals. The 4 percent rule is based on the idea that your portfolio should allow you to withdraw 4 percent of it a year without depleting the funds.
If you’re not sure about your math, there are plenty of FIRE calculators that can help you determine what your retirement number should be.
Creating a Plan for Financial Independence
Once you know what your number should be, you need to create a roadmap towards financial independence. The math here gets a little tricky, because you should be investing your money into the market. I recommend using a retirement calculator to help you see how many years it should take.
Let’s say we’re making $50,000 a year (after taxes), and only spending $40,000, this leaves us with $10,000 to put into savings a year. If we were to save without investing, it would take us 100 years to save $1,000,000. That’s a bit too long of a timeline. If you invest the money instead, assuming a 7 percent return, you’ll have a million dollars in 35 years instead.
If you’re able to cut down your expenses or start earning more, it’ll take less time than that.
Creating Passive Income to be Financially Independent
Another way to become financially independent is to create passive income. Passive income is income that you earn while doing nothing. Sounds pretty sweet, no? Sometimes it takes quite a bit of upfront work, say if you’re writing a book or creating a product. But the goal of passive income is that it makes money over time. The possibilities of passive income are endless.
- Start a blog, podcast, or Youtube channel
- Write a book
- Create printables
- Sell stock photos
- Rent out your garage with a service like Neighbor
- Invest in real estate
Ideally, you’ll replace your need for a job with your passive income. You could diversify your income streams and do several different passive income generating projects, or you could stick to just one. This, like everything else, is customizable to your needs as a woman.
Common Roadblocks for Women Who Strive Toward Financial Independence
While I’d love to say that once you figure out your personal formula, the road to financial independence is easy; Unfortunately, it isn’t. Just like all good things in life, it comes to those who diligently pursue it. You’ll have to work hard and stay consistent to reach a place of financial security.
Burn out is a huge problem to those who seek financial independence. If you try to do too much, too fast, you won’t be able to do anything at all. Seeking financial independence is like running a marathon. It takes a lot of training and diligence. You can’t change your lifestyle overnight and have success. Instead, like training for a marathon, you need to pursue financial independence in small, bite-sized steps.
Lack of Support From Your Social Circle
Friends are great and all, but sometimes they don’t understand your financial decisions. As women, we’re judged for everything we do, and it can be overwhelming to have to turn down plans because they don’t fit in the budget. Keeping peer pressure to spend money at bay can be a significant obstacle on your journey to financial independence. But you have to keep the end goal in mind. Being financially free will feel better than a night on the town.
Sliding Into Debt
Another silent culprit is debt. It’s easy to overspend and find yourself in credit card debt. Ensure you’re watching your spending so that you don’t have to dig yourself out of a financial hole. If you’re already in debt, create a plan to pay it off, so that it’s not a hindrance to your pursuit of financial independence.
Frequently Asked Questions (FAQs)
Why Should Women Choose to Pursue Financial Independence?
Pursuing financial independence can:
- Allow you to pursue motherhood without worrying about money
- Allow you to rely on your own money instead of a partner’s
- Give you the ability to travel and see the world
- Weather medical emergencies without worrying about work
- Take care of family members for an extended period of time
What Are the Advantages of Being Financially Independent as a Woman?
Any woman can benefit from pursuing financial independence. You’ll have a financial buffer between you and the world. And you’ll have more choices.
Some people choose to retire early when they become financially independent. Others choose to pursue work that is meaningful to them, without caring about the paycheck. Still others choose to start companies to change small portions of the world.
When you’re not worried about the basic necessities of life, you can choose to do anything that you want to.
The Bottom Line
Becoming financially independent shouldn’t have anything to do with your gender. Whatever gender you identify with, you can amass wealth and hit your financial goals. It will just take some time and dedication. If you want to become a financially independent woman, go for it! Improving your finances can be a solid means to advocate for women’s potential. You won’t regret it.