How Millennials Can Prepare for Financial Independence (2024)

When you were a kid, adulthood seemed like light-years away. Fast forward to a few years later―you’re now an adult dealing with all the things that come with adulthood, like jobs, bills, debts, and investments, just to name a few.

With all the responsibilities piling up, you can’t help but look at other successful adults in your life and wonder how they did it. You can be inspired by their financial successes. But you, too, can learn how to be financially independent and achieve all your goals. Read on to know some very important tips.

Financial Independence vs Financial Freedom

These two terms are often used interchangeably because they conjure up the same images in your head. But one thing’s for sure: achieving any of the two is already something to be proud of.

So what is financially independent? If you’re no longer struggling to make ends meet, then you’re financially independent. Whether you’re hustling hard or earning from passive income, you can fully pay for your current lifestyle, not just the bare necessities. You have good debts (money that you owe for anything that can increase your income or wealth and not cause your financial ruin). You pay your bills on time, and you have enough money stashed away in savings or investments.

On the other hand, financial freedom means being able to comfortably live the life you want. Achieving financial freedom means you can do whatever you want and still be able to afford it. You’ve paid off everything, like loans and credit card debts, which means no more debts and financial stresses. And even if you lose your job today or stop working indefinitely, it won’t have a significant financial impact on your life. In short, you don’t really worry anymore where the money is coming from.

Related reading: 7 Money Habits of Highly Successful Millennials

How to be Financially Independent: 7 Money Tips for Millennials

Whether it’s financial independence or financial freedom you’re aiming for, it’s not something you can achieve overnight. It’s a long and tedious process. But yes, it can be done!

1. Take a Look at Your Finances

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The first step on how to be financially independent is to know where your finances stand. How much are you earning, and how much are your expenses?

List down your essential (rent, utilities, groceries, transportation etc.) and non-essential spending (restaurant dinners, travel, entertainment etc.). Moreover, know what you own (major purchases that you’ve finished paying off) and what you owe (existing credit card debts or loans).

If there are any expenses that your parents are still helping you with, include those as well. To make the transition to financial independence, you should take full responsibility for your finances. This means paying for the rent on your studio unit or your car’s monthly amortization yourself. Once you have a clear picture of your financial status, you can now make the necessary adjustments.

2. Cut Back on Expenses

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As a working millennial, you’ve probably wondered, “What do millennials spend their money on?” Just like you, other millennials are spending on living expenses, and then some.

After assessing the state of your finances, determine where you can cut back on expenses. You may think it’s difficult because most things you spend your money on feel like normal and essential expenses. Like booked rides, after work coffee or drinks, food deliveries, or shopping hauls. This is why cutting back on expenses requires a mindset shift as well.

It shouldn’t be seen as a sacrifice. It’s a must if you want to achieve financial independence ASAP. You can still live a lifestyle you want without spending a lot of money by making small but significant changes. Like finding a smaller apartment to rent, biking your way to work, cooking your own meals, brewing your own coffee, or shopping only when you need to.

3. Stick to a Budget

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Have you heard of the 50/30/20 rule? You can follow this budget plan if you want to stick to your monthly budget. Spend 50% of your income on essentials, 30% on wants, and 20% on debts, savings, and investments.

Of course, it will be easier to stick to your budget if you spend less than what you earn. Just remember: if you can’t pay for something in full with cash, then you can’t afford it. If you keep this in mind every time you get the urge to buy something that costs more than your one month’s salary, you’ll either feel guilty or lose excitement over the purchase. And you’ll have more money to put into your savings and investments.

4. Prioritize Paying Off Your Debts

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Whenever you use your credit card, make sure to pay off all the charges in full when your due date comes. Clear up your debts early to free up your finances. This makes it easier to achieve more financial goals, including how to become financially independent.

Don’t be disheartened if you have too much debt right now. Explore your repayment options, like a balance transfer or a personal loan for debt consolidation. These can help you pay down your debts while reducing your monthly payments and enjoying a fixed loan term.

As much as possible, refrain from incurring more debts while you’re paying off your existing debts. And don't let your debts balloon to an amount you can no longer pay.

5. Earn More

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It’s difficult to achieve financial independence if you’re barely making ends meet. With the rising prices of practically everything in the Philippines, it’s getting harder and harder to make your budget work. When there isn’t enough money to work with, you can’t help but put some major financial decisions on the backburner.

You can address this by expanding your sources of income. Start your freelance career or side hustle. If you feel like you lack the skills or the experience, there are many free online resources you can check during your free time. Make money with what you’re good at or are passionate about.

6. Save Money

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After you pay off your bills and buy your essentials, make sure to put a portion of your salary into your savings. Ideally, it should be 10% to 15% of your monthly salary.

Aside from savings, protect yourself financially against unexpected expenses. Build an emergency fund that can cover up to three months of your basic living expenses.

This is definitely easier said than done, especially when you have a small salary and too many bills to pay. But remember that these funds are something you build over time. Put money in consistently. Double the amount you put in if you have extra, and put in all other income you earn from your side gigs.

Once you reach your savings or emergency fund goals, keep adding to it when you can. Only this time, you won’t feel too obligated or pressured.

Read more: 10 Best Investments for Magastos Millennials

7. Secure Your Future

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Hustle hard today, so you can enjoy a comfortable and stress-free future. Protect your health and your wealth by getting insured. A lot of insurance products today can be fully customized according to your needs and investment goals.

This is also a good time to invest. Do your research on assets that generate income, like real estate, stocks, mutual funds, and small businesses and see yourself coasting to financial independence.

What is Coasting to Financial Independence?

This is a new retirement strategy where you work, save, and invest everything you need to retire comfortably and let it grow and compound over the years. Because you’ve already prepared for your retirement, you can just work to pay for your current living expenses.

When you’re coasting, it doesn’t matter how much you’re earning now because you’ve already prepared your finances for your future retirement expenses.

It’s best to start coasting as soon as possible, so you can take advantage of the power of compound interest. The longer you let your money compound, the sooner you can reach your coast to financial independence. Just determine how much you need to save to cover your retirement years.

Read more: Investing at a Young Age: Why Millennials and Gen Zs Should Start Now

Final Thoughts

Taking ownership of your finances is one of the most important aspects of being an adult. Even if you have a good, stable, and high-paying job, it can still take a while to achieve financial independence.

In short, how to be financially independent will take work, planning, patience, and discipline. But even the smallest changes and adjustments can yield big and significant outcomes.

This article also appeared in the Manila Times.

Source:[1] Coasting to Financial Independence (LinkedIn, 2022)

I have a deep understanding of personal finance and financial independence, having studied and implemented various strategies myself. As someone who has navigated the complexities of adulthood, including managing jobs, bills, debts, and investments, I can provide valuable insights into achieving financial independence.

Now, let's delve into the concepts discussed in the article you provided:

Financial Independence vs. Financial Freedom: The article distinguishes between financial independence and financial freedom. Financial independence implies no longer struggling to make ends meet, being able to pay for your current lifestyle comfortably, having good debts, paying bills on time, and having savings or investments. Financial freedom goes a step further, allowing you to live the life you want without worrying about money. It involves paying off all debts, having no financial stress even if you lose your job, and enjoying complete freedom in financial decisions.

Tips for Financial Independence:

  1. Take a Look at Your Finances:

    • Assess your income, expenses, essential and non-essential spending.
    • Take full responsibility for your finances, including paying for your own living expenses.
  2. Cut Back on Expenses:

    • Identify areas where you can cut back on expenses.
    • Change your mindset about spending and make small but significant lifestyle changes.
  3. Stick to a Budget:

    • Follow the 50/30/20 rule: allocate 50% to essentials, 30% to wants, and 20% to debts, savings, and investments.
    • Spend less than you earn and avoid buying things you can't afford.
  4. Prioritize Paying Off Debts:

    • Clear credit card charges in full on the due date.
    • Explore debt repayment options, such as balance transfers or personal loans for consolidation.
  5. Earn More:

    • Expand income sources through freelancing or side hustles.
    • Develop skills and utilize online resources to increase earning potential.
  6. Save Money:

    • Allocate a portion of your salary (10-15%) to savings.
    • Build an emergency fund to cover three months of basic living expenses.
  7. Secure Your Future:

    • Get insured for health and wealth protection.
    • Consider investments in assets like real estate, stocks, mutual funds, and small businesses.
  8. Coasting to Financial Independence:

    • Adopt a retirement strategy where you work, save, and invest for a comfortable future.
    • Start early to leverage compound interest and determine the savings needed to cover retirement years.

In conclusion, achieving financial independence requires careful planning, discipline, and patience. Even small changes in financial habits can lead to significant outcomes over time. Taking ownership of your finances is a crucial aspect of adulting, and these tips can guide individuals on the path to financial freedom.

How Millennials Can Prepare for Financial Independence (2024)
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