Independently wealthy doesn’t mean rich, but millions of people have achieved independent wealth. You probably wouldn’t even know it. Most people look like you and me, average people living their lives and making the most of what they have.
The difference between people with independent wealth and those without is vast, though. Here’s what you need to know.
What Does Independently Wealthy Mean?
You are independently wealthy when you don’t have to rely on any external sources for financial support. It means you saved enough money or have enough passive income that you can function (not just survive) without money from your job, loans, or other outside resources.
Financial Independence vs. Independently Wealthy
Financial independence and independent wealth are two often confused terms, but they have different definitions.
If you are financially independent, you don’t need financial support from anyone else. You make enough money and/or have enough money saved, that you don’t have to borrow money or ask others for money to get by.
If you are independently wealthy, you don’t rely on ANY outside sources including your employment. It’s not that you can provide for yourself (that’s financially independent). An independently wealthy person (or couple) has enough money saved that they can live off of what they’ve accumulated without worrying about employment or business income.
Signs That You Are Independently Wealthy
Every person has different signs that they are independently wealthy and many don’t even realize it because they get so used to the life they built. Here are the top signs that you’re living an independently wealthy life:
- You no longer rely on your employment or business income
- You can easily live below your means
- You saved at least 300 times your average monthly expenses
- You don’t worry about money every time you make a purchase or financial decision
- You have adequate passive income
Misconceptions About Independent Wealth
Most people know that independently wealthy people don’t need financial support from others, but they often don’t realize that becoming independently wealthy doesn’t mean someone suddenly changes. In fact, they’ll look just like the ‘average Joe’ walking around town.
- Live in a mansion
- Drive only the most expensive cars
- Dress any different than everyone else
- Act different than everyone else
- Hold influential positions or run multi-million dollar companies
Instead, you’ll find that the independently wealthy have the following characteristics:
- They live a comfortable life, but nothing too ‘showy’
- They drive nice, yet reliable cars that most people drive
- They work hard
- They live a frugal yet comfortable lifestyle
- They put savings and investments first always
12 Ways to Become Independently Wealthy
Are you ready to learn how to be independently wealthy like others around you? It’s not as hard as you think. Here are the top 12 ways:
Live Below Your Means
Don’t live paycheck-to-paycheck or let the lifestyle creep set in when you get a raise or make more money. Your lifestyle should be well below what you make. That’s the only way you’ll be able to sock away 300 times your average monthly expenses.
Don’t play the set-it-and-forget-it game with budgeting. Budget every single month if you can. This way you know what’s coming in and going out and where you need to make changes. Looking at your funds after the fact doesn’t help anything. Your money needs direction and the only way to do that is to revisit your budget monthly.
Track Your Expenses
Don’t assume you’re following your budget – track it. You may be surprised to learn how much you spend when you track every dollar. Use an app like Mint or Every Dollar to see where your money goes. If you find that you’re spending too much, reassess your budget and cut down on your expenses and/or increase your income.
Don’t Use Credit Cards
If you live below your means, you shouldn’t need credit cards. Keep it that way. Credit card debt means you’re borrowing money to live beyond your means. It’s also an opportunity cost for the money you could be saving to achieve the financial freedom you desire.
Have Money for Unexpected Expenses
Life happens, no matter how much we plan. Cars break down, the house needs repairs, or you need doctor or dentist visits. Each of these has one thing in common – they cost money. If you let unexpected expenses throw you off course, you’ll never stay out of debt.
Set aside a rainy day fund and restock it as you use it. When the washing machine breaks down or you have an ER visit, you’ll have the cash to pay for it and not have to dig out your credit card and create consumer debt.
Pay Yourself First
Most people pay themselves last. In other words, they wait until the monthly bills are paid and they’ve had their share of fun and freedom to spend and then they save. But most people find they don’t have any money to save when they do it this way.
Instead, pay yourself first. This goes back to the need to budget. You should know how much you can save each month – figure out a percentage of your income and transfer that amount to savings every payday. We recommend working up to 15 percent of your income, but figure out what you can afford.
Make the transfers automatic so there’s no room for forgetting or choosing not to save.
Diversify Your Portfolio
Chances are you’re already investing if you’re trying to become independently wealthy, but what are you investing in? Is it just stocks and bonds?
While they are both great and can diversify your portfolio somewhat – there are other ways to grow and diversify your portfolio so that your investments withstand any economic downturn (hello 2020). Think outside the box. Where else can you invest? Real estate, cryptocurrency, and commodities are just a few places you may want to consider.
Invest in Retirement and Non-Retirement Funds
You should save for retirement as early as possible, but don’t overlook taxable investments too. Max out your 401K and IRA contributions, while distributing some of your investments in your taxable accounts too.
Taxable account funds can help you pay for large expenses, like buying a home, or provide passive income for the time that you stop working and need the funds. Don’t withdraw from retirement funds or you’ll pay a hefty 10 percent penalty plus applicable taxes.
Own and Payoff Your Home
When you’re trying to build wealth, you need to increase your net worth. Owning a home is a great way to do this. Not only do you earn the equity as you pay down the mortgage, but real estate typically appreciates over time, increasing your net worth even further.
Focus on paying your mortgage off as fast as you can (making extra payments whenever possible) so you own the home free and clear. If you can, refinance to a 15-year mortgage and make extra payments to that. You’ll pay the loan off in less than half of the time of a traditional mortgage.
Invest in Yourself
While you should invest in stocks, bonds, mutual funds, ETFs, and real estate, don’t forget about investing in yourself. The more educated you are, the more financially secure you’ll become. Invest in your self-care, personal development, personal finance education, and even your career.
Find ways to continually better yourself and to give yourself more opportunities in life. The more opportunities you have, the more money you’ll make and the faster you’ll achieve financial freedom or become independently wealthy.
Diversify Your Income
Relying on your 9 to 5 income alone won’t make you independently wealthy. Don’t focus on one stream of income. Did you know millionaires often have 7 streams of income? This way they always have money coming in from different sources.
You don’t necessarily need 7 streams of income, but any income you can add to your ‘regular income’ helps. Start a side hustle, find passive investments, or even investing in real estate serves as an income stream. Figure out what you can do that will improve your finances, allowing you to make much more than your standard cost of living, allowing you to become independently wealthy.
Think Long Term
Focusing only on today won’t make you wealthy. You have to be able to look far into the future – further than you can see.
Wealth doesn’t happen overnight, just like your high-paying job didn’t happen overnight. You put in the time to study and learn. That studying and learning paid off with a job and that job continually brought you a higher income.
It’s the same for your wealth. You start small – invest in your future and eventually, you’ll see the fruits of your labor. It may not be in six months or even 6 years, but the consistent effort pays off in the end.
Independently Wealth FAQs
How Much Is Independently Wealthy?
There isn’t a cut and dry answer to this question. Each person needs a different amount of money to be independently wealthy. It depends on your monthly costs and overall needs. In general, according to a Charles Schwab 2019 Modern Wealth Survey, you need at least $2.3 million to become independently wealthy.
What Is Better: Being Rich or Wealthy?
This is also a matter of personal opinion, but typically, ‘rich people’ spend their money needlessly and they ‘act rich.’ Wealthy people act like everyone else and are much more frugal in their ways so they have the money needed to finance their future lifetime.
How Do Millionaires Get Rich?
There’s no well-kept secret that makes millionaires get rich. Some are born into money and inherit the riches. Others work their way up the corporate ladder and work hard to earn their money. Many simply live a frugal life, invest well, and avoid living paycheck-to-paycheck or falling for the lifestyle creep that eats at their funds.
Independently Wealthy Is the Way to Be
Today, independently wealthy means you don’t live on income from employment alone. You can live your life with ease, knowing you have the money needed to cover the cost of living for the rest of your life.
It requires a frugal lifestyle and plenty of sacrifices early on, but once you reach independently wealthy status, you’ll agree that the hard work was well worth it.
Are you ready to learn how to obtain real wealth and take personal finance more seriously? Check out our article on the FIRE Movement.
Samantha uses her BS in Finance and MBA to help others control their finances through budgeting, saving, investing, side hustles, and travel hacking. Due to following the FIRE Movement’s principles, she was able to quit her high-stress job in the financial services industry in July 2019 to pursue her side hustles. She is now a full-time entrepreneur, freelancing coach, and blogger.