Becoming independently wealthy is a goal so many of us aspire to. But it seems so impossible to achieve. How do you do it? What steps do you need to take? Can you really do it, or is the independently wealthy lifestyle just for trust fund babies and tech entrepreneurs?
In this article I’ll show you 15 steps you need to build independent wealth, along with some great resources to help you along the way.
Definition of Independent Wealth
Wicktionary.org defines independent wealth this way:
“Possessing enough wealth that one does not need financial support from others or income from employment”.
Simply put, if you have enough money of your own to where you never have to work again, you are independently wealthy.
The Difference Between Financially Independent and Independently Wealthy
But there is one thing to keep in mind. Some people tend to confuse being financially independent with being independently wealthy. You probably know plenty of people who are financially independent, meaning they don’t have to rely on someone else to give them money or pay their bills.
But being independently wealthy is another financial level entirely. You may not know anyone who fits in this category, and if you do, you likely don’t know many of them. Not only do they not rely on others to provide them with money, but they have built enough wealth to supply a steady stream of income to meet all their needs going forward.
Misconceptions About Independent Wealth
Also, there are a ton of misconceptions about independently wealthy people. When you think about someone in this category, what do you imagine?
Most people imagine someone who:
- Lives in a massive house.
- Drives a Maserati/Bentley/Ferrari, or some other incredibly expensive car.
- Runs a huge business that makes millions of dollars a year.
- Dresses like they just stepped out of a fashion magazine.
But in most cases, people who are independently wealthy look more like you and me. For instance, they:
- Tend to live in a nice neighborhood, but not too nice.
- Usually drive used cars from the usual brands like Toyota, Ford, Chevy, and Honda.
- Dress like an average person.
- Have a regular job, and they work hard.
- Are extremely consistent about putting money into savings, building huge wealth over a long period of time.
Believe it or not, most independently wealthy people are average, run-of-the-mill, boring people who have been diligent about how they manage their money over the long term.
There are a couple of awesome books I recommend that show you exactly who these people are, and how you can be one of them:
How Much Money Do You Need to Become Independently Wealthy?
There is no set amount of money that determines whether you’re independently wealthy or not. It’s all relative.
The neat thing about building enough wealth to create total financial freedom, is that you don’t need a high income to do it. Financial independence is not just for people with millions of dollars. The average Joe can do it too!
It really depends on the lifestyle you lead. At its core, financial independence happens when you have enough passive income from investments coming in, that it exceeds your expenses.
If you lead a minimal lifestyle and your expenses are $3,000/month, but your income from investments is $4,000/month, then you’re independently wealthy! You don’t need a job, and you can live indefinitely off your investments as long as you never spend more than you make.
Signs You are Independently Wealthy
The funny thing about wealth, is that you have to be so diligent and disciplined for such a long period of time, that you may not realize it when you actually achieve financial independence. Here are a few signs that will help you decide if you have finally arrived:
- Your financial situation allows you to live how you want, without money being the primary factor in your decision making.
- You can easily live below your means.
- Passive income easily provides enough money to support your lifestyle.
- Net worth is at least 20x your yearly income. Or, your total nest-egg is at least 300x your monthly expenses.
- You don’t have to work if you choose not to.
Of course, these aren’t the only indicators of independent wealth. However, they provide a good start to help you understand where you’re at in your wealth journey.
15 Steps to Become Independently Wealthy
Creating independent wealth is a long journey for most everyone. It typically takes decades of diligence to get the job done. But once you arrive at such an enviable position, it’s incredibly satisfying!
Below you’ll find a complete list of steps you’ll need to take to make it happen. Good luck!
Step #1- Get Total Control Over Your Money
First and foremost, if you don’t have total control over how money flows in an out of your life, you will never build significant wealth. Here are some basic tips to help you manage your money well.
Never Spend More than You Make
Most people are in debt and spend more money than they make. That’s why the average Joe lives paycheck to paycheck and never can seem to get ahead in life.
Spending less than you make is the most basic wealth building concepts that most people just totally ignore. Of course, the best way to turn that around is to start doing a budget every single month.
Do a Budget Every Single Month Without Fail
When Angie and I started doing a written budget every month, our finances finally made sense! We made a plan for how to spend our money for the month ahead, instead of trying to figure out where everything went after after it was spent.
Believe it or not, most millionaires do a written budget every month. And they will tell you that a budget is one of the most important tools they used to become a millionaire in the first place. I’ve written a ton of articles on how to create a budget. You can find them at the links below along with free and premium downloadable budgeting worksheets to get you started:
Create and Maintain an Emergency fund
An emergency fund is crucial to your wealth building success. When you have money set aside for the inevitable emergency, it keeps you from resorting to using debt to pay for it.
It’s so much easier to deal with an emergency by paying cash! Whether it’s a broke washer or a major pandemic, it makes your life less stressful, and you don’t have to use credit cards or monthly payments to pay for it. Unfortunately, using debt for an emergency puts you at a disadvantage, because you don’t always pay it off before the next emergency hits. Not to mention the interest and fees involved. Here are a couple of my posts on building an emergency fund.
Develop Financial Discipline
Spending within your means, budgeting, and building an emergency fund all take a certain level of financial discipline. Anybody can do them, but most people don’t want to make the effort. That’s why most people never build significant wealth.
When it comes down to it, you can’t become financially independent without creating the discipline and habits to make it happen. So if you want to build wealth, it’s time to start building your financial discipline muscles! Here are a couple of articles to get you started:
Step #2- Always Pay Yourself First to Build Wealth Independence
One of the top reasons it’s difficult for most people to save money is because they pay everybody else first. They focus on paying the bills, then put money into savings, if there is any left.
But savings should be the highest priority if you want to build wealth. It’s essential that you decide ahead of time how much money you want to contribute to savings every month. Most experts (including me) recommend at least 15% of your income.
Every time you get a paycheck, the first thing you should do is automatically take 15% (or more) and put it into savings and/or investments.
Of course, this is a faith-based blog. So if you’re like me, tithing takes first priority. In that case, pay God first, then pay yourself second.
Step #3- Stay Out of Debt
Using consumer debt is the one thing that screws people the most when it comes to building wealth. Consumer debt always makes you poorer in the long run. It’s totally not conducive to creating independent wealth in your life.
Consumer debt is an insidious enemy to your finances. If you have it, get it paid off as soon as you possibly can. If you don’t have any consumer debt, don’t get any.
Step #4- Don’t Increase Your Lifestyle
When your income increases, it’s easy to find ways to increase your lifestyle along with it. Be careful! The best thing you can do is to start putting most (or all) of your increase into savings and investments.
Of course, there is nothing wrong with a small celebration, especially if you get a big raise. But don’t let it become an easy excuse to commit to monthly payments and buy stuff you don’t need.
Step #5- Know Your Net Worth
Tracking your net worth is just for rich people, right? Nope! Even if you’re not there yet, you need to keep track of your net worth, even it’s a disappointing negative number.
Knowing your net worth is important. The more information you have about your financial position, the better financial decisions you will make. Even if you have a negative net worth, over time you will see it grow higher and higher as you pay off debt and put money into investments.
Even though my wife and I have saved and invested for many years, our net worth didn’t make it above zero until I was in my mid-forties. This is primarily because we had a substantial mortgage on our house that was more than the equity and other assets we had.
So, don’t worry if you have a negative net worth. The point is to keep up with it, and make sure your net worth is growing over time.
How Do You Calculate Net Worth?
Calculating your net worth is actually very simple. Just subtract what you owe from what you own. What you owe are things like:
- Outstanding car notes
- Credit card bills
- Your mortgage balance
- Loans (bank, family, home equity, etc.)
- Any other money you owe.
What you own are things like:
- Your investments (real estate, IRA, 401k, etc.)
- The amount your vehicles are worth
- The amount of equity in your home
- Cash in bank accounts or in your possession
- Jewelry, antiques, etc.
The best tool I’ve discovered to calculate your net worth for you is Personal Capital. It’s totally free to sign up and use.
You will get a ton of information about your net worth calculated automatically in your own personalized dashboard. It is easily my favorite online tool for tracking my finances!
How Much Net Worth Do You Need to be Independently Wealthy?
There is no set net worth number for becoming independently wealthy. It’s different for everybody.
Net worth is not the best measure to understand if you are independently wealthy, as you may have a lot of money tied up in assets (such as your home) and little passive income coming in.
It’s really a matter of when your monthly passive income is enough to provide the lifestyle you wish to lead without having to work. In other words, your passive income is greater than your expenses.
Step #6- Take Calculated Risks
It’s good to take a little risk every once in a while in the name of building wealth. Now, by risk, I don’t mean investing in anything crazy. Stay away from the Beanie Babies and Star Wars figurines!
However, investing in something other than stocks and mutual funds is ok as long as you totally understand what you’re getting into. Case in point- a few years ago I decided to do something different, so I purchased a rental property. It was something new for me, so I felt like it was a little risky.
However, I thoroughly educated myself on what I was doing, and I made a great purchase on an excellent property that has performed well over the years!
Here are a few tips for taking calculated risks when investing:
- Get totally educated on what you’re investing in. If you can’t explain it to a 5th grader so they can understand it, leave it alone.
- If there is s substantial chance you will lose all the money you invest, then don’t invest.
- Never risk more than 10% of your entire investment portfolio.
- Never let your emotions get involved in the investment. If you’re overly excited about it, then watch out, you’re going to get burned!
- Never trust someone else who tries to convince you to buy some exotic investment you know little or nothing about.
However, there is nothing wrong with investing in regular old boring mutual funds. That’s how most millionaires achieved financial freedom, and it’s good enough for you too!
Step #7- Own Your Home
Homeownership is another wealth building effort you shouldn’t ignore. Most people with significant wealth are homeowners. Sounds logical, right? But what the stats don’t tell you is that these people were homeowners long before they had built a significant amount of wealth.
Yes, there is an age old debate as to renting vs. owning a home. There are good cases for both under the right circumstances. But for building long term financial wealth, homeownership is an important factor.
Owning a home increases your net worth over time as you pay off the mortgage. But the real benefit of homeownership happens when the mortgage is paid off and the home continues to appreciate in value. If your health deteriorates and you can’t live alone or without help in your old age, you have a nice store of wealth to help fund a nursing home or other care you may need.
Not only that, but your home is also a store of wealth you can leave to your children as an inheritance they can sell for cash, keep for the family, or use as a rental property for ongoing rental income to help your kids eventually become independently wealthy as well!
Step #8- Get Married and Stay Married
Study after study shows that divorces drain wealth. One of the best investments you can make, whether it be financially or relationally, is in your marriage.
The great thing about being in a solid marriage is that you both work together to achieve your financial goals. When you have the power of two people working together toward common goals, it multiplies the result exponentially, creating the proper environment for creating sustained, independent wealth.
Step #9- Set Goals
Setting goals is one of the best tools you can use to achieve anything, especially wealth. Instead of having some vague idea about increasing your income or saving more money, get specific about what you want to achieve.
Write down your goals. Have a specific date you want to achieve them, and write down what you need to do to achieve your goals in the right time frame. Then, take action.
Committing to specific, written, financial goals helps to accelerate wealth building, eventually allowing you to become independently wealthy much sooner than if you don’t set financial goals for yourself.
Step #10- Save at Least 15% of Your Income to Build Independent Wealth
Ever hear the saying “slow and steady wins the race”? It’s absolutely true! You don’t need some fancy investment strategy to become independently wealthy. All you really need is consistency.
When you consistently invest at least 15% of your income out of every single paycheck, you will be amazed at how fast you will build a huge pile of wealth. It’s one of the simplest, but most powerful things you can do to retire with millions of dollars and create a generational financial legacy you can be proud of!
Step #11- Be a Smart Investor
To become financially independent, you need your money to grow exponentially. That means you must invest your money. Some investments are more risky, and some investments might even lose money. But in the long run, investing your money wisely is how you achieve long term financial freedom.
There are hundreds of ways to invest your money. But you don’t have to do anything too sophisticated to make your money grow. In fact, most millionaires increase their wealth with simple, boring investments that anyone can do.
Stocks and Mutual Funds
Believe it or not, most millionaires build their wealth investing in stocks and mutual funds through their 401k’s and IRA’s. In most cases, financial freedom is not built by flashy, complicated investments.
Investing in mutual funds and stocks is not complicated if you understand a few basic principles of investing. in fact, you can even use a robo-advisor to do the investing work for you. The more you educate yourself about investing, the less money you will lose, and the more you’ll make over the long run. Believe me, I know this from experience!
Here are a few of my top investing articles to check out:
Real Estate Investing
Real estate investing is probably my favorite way to build wealth. I prefer long term buy and hold real estate investing. It’s actually one of the most boring investment strategies there is. But it’s an incredibly good way to get truly passive income that eventually causes you to become independently wealthy.
There are many ways to invest in real estate, but at this point in my life I believe long term, buy and hold real estate investing is the most lucrative investment with the least risk possible.
I have a small rental house that’s been an incredibly good investment for me. Not only does the house appreciate significantly in value every year, but my tenant faithfully sends me over $1,000 in rent every month! I have a property manager to tend to the details, so I literally spend only 2-3 hours of my time every year dealing with my investment property. My goal is to eventually have many more just like it!
I wrote a detailed series of posts about how I got into my first rental property. You can check it out below:
Invest in Yourself
There is no better investment than investing in yourself. The more you invest in your career skills, personal development, and financial knowledge, the more it pays off over time. You’ll do much better in your career, invest better, make more money, and get more opportunities that others don’t.
You will be able to create infinitely more financial freedom and wealth independence when you consistently invest in yourself.
Step #12- Earn Extra Income- Get a Side Hustle
I always recommend a side hustle to supercharge your financial goals. Whether you want to get out of debt faster, or grow your investments bigger, a good side hustle is a great way to do it. Any time you can make additional money to use exclusively for saving and investing, you are going to seriously win with money!
A nice side job making just a few hundred extra dollars a month can literally change your family tree! When you invest your side hustle money and make it grow, it creates financial independence much faster than you ever could have without it. I’ve written plenty of posts on side hustles and money making ideas. Here’s the complete list below:
Step #13- Be a Giver
One concept I continually stress- if you want financial freedom, you need to be a giver. I totally understand that giving money away seems completely counterintuitive to creating wealth independence. But from my experience, it’s absolutely essential.
Some people call it Karma. Others (like me) believe God recognizes a giving heart, and trusts you with more once He knows He can trust you with a little.
It’s a natural law that when you freely give, it comes back to you multiplied in many different forms. It may come back in the form of money, increased opportunities, strategic relationships, or anything else that increases your bottom line. It’s good for your soul, and benefits those who receive your generosity. Everybody wins!
Visit the CFF Giving page for all of my blog post on the subject.
Step #14- Educate Yourself About Money
It’s highly unlikely you will ever become independently wealthy unless you learn everything you can about money. You need to be curious about anything and everything related to how money works. Some of the most important things you should know:
- The basics of investing.
- How economies work.
- Personal finance concepts- budgeting, using cash, getting out of debt, etc.
- How compound interest works.
- Why using debt is unwise.
- How time and money are related.
- Know how to read basic financial statements.
- Anything else that increases your knowledge about money and how it works.
Step #15- Use Your Time Wisely
One of the big differences between those who are financially successful, and those who aren’t, is how they use their time. Highly successful people spend much more time increasing their knowledge and abilities, and much less time on pursuits such as entertainment and recreation.
Instead of reading novels, read nonfiction books that will teach you something. Instead of movies and sitcoms, watch documentaries or turn the TV off and work on a side hustle.
There is nothing wrong with a little mindless entertainment every once in a while. But if it’s a daily habit that creates nothing productive in your life, you’ll need to change your habits.
Creating Independent wealth starts with a different mindset than the average person, who is broke. Learning to better use your time to create more wealth in your bank accounts, relationships, spiritual walk, and general knowledge always pays off in the long run.
Conclusion on Building Independent Wealth
In the end, building Independent wealth is rarely easy. That’s why most people aren’t rich. It takes time, patience, knowledge, and long-term discipline to make it happen.
But the great news is that anyone who really wants to be independently wealthy can achieve it. The path may be easier for some, and much more difficult for others, but it’s available to all who really want it.