Want to be financially independent at a young age? Here are 5 Tips

Living comfortably in old age is the dream of many people. Unfortunately, many people just dream without trying to make it happen or still don't know how to get there. Don't worry, it only takes five steps to become financially independent at a young age.

Financial independence can be defined as a condition in which a person has sufficient financial strength to meet his various needs. Sufficient finance can mean that you don't have a debt burden or have abundant assets. So, you don't need to be rich or have an income of up to three digits to be financially independent. 

To be financially independent, of course you must be able to meet the needs of today's life and the necessities of living in old age. Therefore, of course, it takes a lot of funds. If currently your monthly expenses reach 25,000, for example, then you have to project how much money you need to have so you can live comfortably after retiring. There is an inflation calculation that you also have to take into account, so that it could be that the funds that must be needed to meet daily needs at the age of 56 are no longer 25,000 per month but have already reached 2 times that. Not to mention that you don't know how long you will be.

This large fund does require time to be raised. But, that doesn't mean you can't reach it faster, you know. How to?

1. Set your mindset and lifestyle

Have you ever heard of the latte factor? These are small expenses that make us wasteful and often go unnoticed. Even the smallest expenditure if done regularly, over time it will be large.

So, in order to be financially free from an early age, we must have a mindset and lifestyle that can support these goals. Install the mindset that you don't want to be burdened by financial problems in old age, one way is by knowing what your needs and wants are. Also adjust your lifestyle and expenses with the income you have. No matter how much income one has now, if it is not accompanied by awareness of future needs, it can be used up for things that are not really a priority. 

2. Determine financial goals and budget expenses

This second step is closely related to the first step. After establishing a mindset and lifestyle, determine your specific financial goals including what you want to achieve, how much money you need, how to get them, and when to use them. For example, if you want to own your own house at the age of 27, then you have to calculate how much money is needed, how much time is left to make it happen, and how to get the funds.

An expense budget that is prepared in detail and carried out regularly will help you calculate and prepare the funds needed. Enter all routine expenses for daily needs and monthly bills, so that your calculations are not wrong. Determine your spending priorities and discipline with the budget plan that you have made.

3. Save money

Don't immediately be tempted to invest, it's better to start by saving regularly first. The benefits of saving are numerous, ranging from managing income, avoiding debt, having an emergency fund, to learning patience and discipline. The last two things will really help you when investing later.

There are many saving methods that you can choose, for example the 50/30/20 method which divides 50% of income for basic needs, 30% for personal needs, and 20% for financial goals or the 75/25 method which divides 75% of income for expenses and 25%. for savings, and others. Apart from keeping it in a separate savings account to make it safer, you can also save the money in gold or mutual funds. 

4. Invest early

After you can regularly save and manage your income properly, then you also have to start investing to achieve the financial goals that have been set. Investment is a way that can be done to deal with the inflation rate in the future. In choosing an investment instrument, you must consider the financial goals you want to achieve and the risk profile you have.

There are many types of investment instruments available, ranging from gold, stocks, bonds, property etc. Consider carefully which one is most suitable for you and calculate the return or return that you can get from investing in the chosen instrument. 

Then, make sure you invest in instruments that offer reasonable returns. Don't be tempted by the lure of returns that are way above the industry average, as this is likely an illegal investment. Compare it with the yields offered by the formal financial industry, for example, deposit rates or mutual fund yields. If someone offers a yield of up to tens of percent or even tens of percent a month, then it is certain that this is a fraudulent investment.

5. Limit consumptive debt

The next step to be able to become financially independent at a young age is to limit consumptive debt. What is meant by consumptive debt is debt to buy goods or services that cannot be used or rotated to make money again later. For example, using a credit card to shop for a new device every time a new model comes out, using loan financing to buy new shoes every 3 months just because the style is attractive, and such.

Remember that credit cards and loan financing must be paid back. These debts are at risk of accumulating and becoming large if they are not paid off immediately. Moreover, there are flowers that are also charged.

It doesn't matter if you take a loan for something that is productive, for example as business capital. Because, installment payments can be taken from the income or profits obtained from the business. Buying a device to support work can also fall into this category, such as buying a super high-end laptop because it is needed for video editing. 

Here are five steps you can take to achieve financial independence at a young age. The earlier you start, the longer the time span you can use to collect coffers of money to achieve financial goals. But, that doesn't mean it's too late to start as long as you are consistent and disciplined. 

 So, let's start now!