Independently Wealthy: What it Means & How to Try To Achieve It
What Does it Mean to Be Independently Wealthy?
Being independently wealthy means that you have enough financial resources to support yourself and your lifestyle without relying on others or outside sources for financial support such as a full-time job or social security.
In other words, you have enough money saved, invested, coming from passive income streams or in other assets that you can live without income from another person or through a job.
This can give you the freedom to make choices about how you want to live your life and pursue your goals. But how do you become independently wealthy, and what is the difference between being rich and being wealthy?
Rich vs. Wealthy: What’s the Difference?
The terms “rich” and “wealthy” are often used interchangeably, but they actually have different meanings. Being rich generally refers to having a high income or a lot of money, while being wealthy means having a significant amount of assets and financial resources.
In other words, someone who is rich may have a high income but not much in the way of assets, while someone who is wealthy may have a more modest income but a large net worth.
There’s no set amount of money you need to be considered rich or wealthy. It depends on your individual circumstances and your own opinions on wealth. You don’t have to be a billionaire to become independently wealthy, not anywhere close.
It can take years to reach your financial goals and generate enough passive income, but it is possible with the right mindset, frugal lifestyle and the discipline to continue building wealth.
Independently Wealthy vs. Financial Independence
Independently wealthy and financially independent are often used interchangeably, but they can have slightly different meanings.
- Independently wealthy refers to having enough financial resources to support oneself without needing to work or rely on others for financial support. This can be achieved through a variety of means, such as saving and investing, inheriting wealth, or starting and growing a successful business.
- Financial independence, on the other hand, refers to the state of having enough wealth or income to meet one’s basic needs and financial goals without needing to work for an income. This can be achieved through a variety of means as well, such as saving and investing, generating passive income streams, or having a high enough level of wealth to live off the interest or dividends.
In both cases, the goal is to have financial freedom. However, the term “independent wealth” tends to focus more on the financial resources themselves, while “financial independence” focuses more on the ability to live independently from an income.
One potential difference could be perceptions. Independently wealthy people are viewed to have so much money they could pay all bills without even relying on passive income sources.
5 Levels of Wealth
1. Financial Insecurity
This first level of wealth refers to a person whose wealth is barely covering their basic needs for survival such as food, shelter and clothing. These individuals will likely barely live paycheck to paycheck. They may be in debt, have a low income, and have little or no savings.
2. Financial Security
Your cash flow is consistent enough to cover the basic cost of living and you have an emergency fund which means losing your job would not be a disaster.
3. Financial Independence
At this level, an individual has a significant amount of wealth and is able to live off of the income generated by their assets. They may not need to work for a traditional employer and have a high level of freedom and flexibility in their life. They may have passive sources of income, such as investments or rental properties, that provide enough money to cover their expenses.
4. Financial Abundance
This level of wealth refers to having more than enough financial resources to meet one’s needs and desires. An individual at this level may be able to afford luxuries and experiences that are beyond the reach of most people.
5. Financial Legacy
At this level, an individual has accumulated a significant amount of wealth and is able to pass it down to future generations. They may have a financial plan in place to ensure that their wealth is preserved and used in a way that aligns with their values and goals.
Net Worth: What It Is and How To Calculate It
Your net worth is a measure of your financial worth and is calculated by subtracting your liabilities (debts and obligations) from your assets (property, investments, and other valuables).
To calculate your net worth, add up the value of all your assets and then subtract any outstanding debts or liabilities. Your net worth is a snapshot of your financial position at a given point in time, and can help you understand your overall financial health.
Ways To Try To Achieve Financial Independence
Achieving financial independence is a goal for many people, as it allows you to have the freedom and flexibility to live your life on your own terms. There are many different paths to financial independence, and the right one for you will depend on your goals, needs, and circumstances.
Some common ways to achieve financial independence include:
Build a Budget
To create a successful financial plan, it’s important to first assess your current financial situation. A budget can help you do this by tracking your income and expenses.
There are many different budgeting methods to choose from, so it’s important to find one that works for you. Make sure to include all relevant budget categories in your budgets, such as bills, groceries, and entertainment.
Once you have all your numbers in place, you’ll be able to see how much money you have left over after accounting for all your expenses.
If you have extra money left over, you’re in good shape. But if you don’t have enough money to cover all your expenses, you’ll need to find ways to cut back spending or increase your income.
Once you know where you stand, you can make any necessary adjustments and start redirecting more of your money toward savings and investing. By following this process, you can create a solid financial plan that will help you achieve your financial goals.
Calculate Net Worth & Track It
Once you have a budget and can understand and track your living expenses, it can be useful to calculate your net worth. To determine your total net worth, include investment portfolios, retirement accounts (IRAs), student loans, credit card debt, bank accounts, income, savings and potentially more.
Many individuals may find it helpful to work with a financial professional to help ensure they are accounting for every aspect of their financial situation.
Create a Wealth Plan
Once you understand your budget and your current net worth, it’s helpful to create a plan to help reach your money goals.
Every investment and wealth plan is going to look different, but it can be helpful to set both short-term and long-term goals for your finances.
Save and Invest
Building up your savings and investing your money in a diversified investment portfolio can help you try to grow your wealth over time, both for an emergency and for retirement. Investing in the stock market and alternative assets such as real estate or Contemporary Art can help diversify holdings and build long-term wealth.
Alternative assets, like Contemporary Art, are investments that are non-correlated with traditional markets, meaning they can better protect your assets from a market downturn.
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Having an emergency fund helps build up an individual’s resilience to financial downturns or hardships. Some personal finance experts may even recommend building an emergency fund before tackling any consumer debt you may have.
Increase Your Income & Generate Passive Income Streams
One way to achieve financial independence is to increase your income through promotions, raises, or by starting a side hustle. A side hustle is a part-time business or gig, in addition to your regular job, that can bring in extra money.
Building up passive income streams, such as rental properties, real estate investments or dividend-paying stocks, can help you achieve financial independence without needing to actively work for it.
Live Below Your Means
When you think of “rich people,” you may think of designer fashion and luxurious vacation homes. However, to become independently wealthy, it is best to not let lifestyle creep diminish your savings and instead live below your means.
You’ll want to keep your monthly expenses in line with the previously designed budget. To mean long-term goals, it’s important to avoid lifestyle creep when your income increases. If you allow your expenses to increase along with income or savings, you won’t be able to grow your savings as quickly.
In a worst-case scenario, you may find yourself taking on more debt to keep up with your new lifestyle expenses. One of the most important things you can do when building wealth is to avoid debt, especially debt that carries a high-interest rate — such as credit card debt.
Cutting back on unnecessary expenses and living below your means can help you build up your savings and achieve financial independence faster.
Challenges of Being Independently Wealthy
While being independently wealthy has many benefits, it also comes with its own set of challenges. Some of the challenges that people who are independently wealthy may face include:
- Managing wealth and making smart financial decisions: It’s important to have a clear financial plan in place and to make smart financial decisions to help you maintain your wealth over time.
- Dealing with taxes and financial planning: Being independently wealthy often means having more complex financial affairs, which can make tax planning and financial planning more challenging.
- Avoiding financial pitfalls: It’s important to be aware of potential financial pitfalls, such as scams and bad investment opportunities, and to take steps to protect your wealth.
The Bottom Line
In conclusion, being independently wealthy means having the financial resources to support yourself without needing to work or rely on others for financial support.
It’s a goal that many people aspire to, and there are many different paths to achieving it, but many will require dedication and hard work. It’s important to have a clear financial plan in place and to make smart financial decisions to help you achieve and maintain financial independence.
Additionally, being independently wealthy comes with its own set of challenges, such as managing wealth, dealing with taxes and financial planning, and avoiding financial pitfalls, but with careful planning
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