What Does it Mean to be Independently Wealthy? + 10 Tips to Get There — Money Saved Is Money Earned
Most people wish they had more money. Whether it is to pursue their passions, travel more, quit their stressful job, or because you need money now, dreams of wealth permeate the minds of many.
But what if I told you that the wealth you’re dreaming of wasn’t as far away as you imagine? That you too could become independently wealthy with a plan, persistence, and patience?
The truth is, being independently wealthy isn’t what most people think it is.
Read on to learn what it means to be independently wealthy, how it differs from financial independence, and tips to get yourself on the path to becoming an everyday millionaire.
What Does it Mean to Be Independently Wealthy?
While most people think being independently wealthy means having such ridiculous amounts of money that you can do almost anything you want, the real definition is much more attainable.
Being independently wealthy is having enough wealth to not require support from another person or income from employment. Literally, having wealth independent of others.
In other words, you have enough money saved, invested, or in other assets that you can live without income from another person or through a job. This definition doesn’t necessarily mean that you don’t work, but rather that you don’t NEED to work to maintain your lifestyle.
Thus, as long as you have the funds to maintain whatever lifestyle you’re trying to lead without needing income from an outside source, then you would be considered independently wealthy.
How is it Different from Financial Independence?
At this point, you’re probably thinking that definition sounds a lot like financial independence.
That’s because, by definition, they are essentially the same thing. Although you’ll find some variation in the definition of financial independence, most agree it is essentially having enough wealth to live as you wish for the rest of your days without needing to work.
Financial independence is also typically attached to the concept of retiring early, often shortened to FIRE ( financial independence, retire early). There are several different types of FIRE and ideas about becoming financially independent range from retiring fully at an early age to embracing a work-optional life.
So, what is the difference?
The answer is not much. By definition, they are the same, but the devil is in the details here.
Vicki Robin popularized the idea of FIRE in the early ’90s, and the FIRE movement has morphed largely into the idea of reaching financial independence as soon as possible so that you can retire early. The concept of financial independence is presented as attainable to almost anyone.
One potential difference is not by definition but by perception. Independently wealthy people are perceived to have so much money that they could pay their bills without relying on even passive income sources. In this case, those who are independently wealthy would have far more saved than the typical FIRE crowd.
Thus, the only potential difference is that those perceived to be independently wealthy have so much that they wouldn’t need to rely on income produced from their investments or business (even though they do).
What Independently Wealthy Looks Like
All of the above is to say, the difference between independently wealthy and financially independent is really in the perception of these terms rather than the reality.
This is why becoming financially independent, and even FIRE is seen as attainable while becoming independently wealthy is not.
When most think of someone who is independently wealthy, they think:
- Luxury car
- Designer clothes
- Private jet or yacht
- Started or works at a successful large business
- Born into a wealthy family
While those people are independently wealthy, so are these people:
- Ordinary car
- Nice house in a nice neighborhood
- Regular clothes
- Fly like the rest of us maybe owns a boat
- May own a small business or works a regular but good job
- Born into a regular family and didn’t inherit wealth
- Average person
In fact, there are a lot more everyday millionaires than you may think. There are roughly 11.8 million households with a net worth of at least $1 million, which equates to 3% of the U.S. population, and only about 20% inherited their wealth. If you look at individuals, around 20 million Americans, or 8%, have the assets to be termed millionaires.
These statistics, along with the findings of Chris Hogan presented in his book, Everyday Millionaires, show that there are more millionaires out there than you may think, and they likely won’t be easy to spot.
The reason for this stealth wealth is simple: everyday millionaires become so by having a plan, being persistent in following their plan, and having patience.
10 Tips to Become Independently Wealthy
Now that you know it’s possible, is becoming independently wealthy one of your goals? Here are some tips to help you reach financial independence and become an everyday millionaire.
The first step with any plan is to know where you’re starting from, and a budget will allow you to do that. If you don’t know where your money is currently going, it will be hard to know what areas to adjust or how to start directing your money.
Start by finding a budgeting method that works for you, as budgeting isn’t a one-size-fits-all approach. Next, ensure you have all the potential budget categories for your situation accounted for. Finally, put your numbers in and see where you stand.
If you have money left over after accounting for all your expenses and spending, then you’re doing well. If you don’t have enough money to meet all your expenses and spending, you need to find places to cut back or increase your income.
Once you know your monthly money situation, you can begin any necessary changes and start creating a plan to redirect more of your money into savings/investing categories within your monthly budget.
2. Calculate Your Net Worth and Track It
Once you have your initial budget, the next step is to calculate your net worth. Net worth is the sum of your assets minus your liabilities, or what you own minus what you owe.
Assets include things of value or things that make you money. These include investments, retirement accounts, savings, real estate, etc.
Liabilities are any debts you owe, including credit cards, auto loans, mortgages, etc.
Don’t be too frustrated if you find that your net worth is negative or small. Know that this is just a starting point and that your net worth will increase steadily as you pay off debt and increase savings.
Now that you know your current budget and your net worth, it’s time to create a plan to reach your money goals.
This plan will look different for everyone, and some journeys will take longer than others. The important part is to create a plan that is manageable for you. Set short-term goals and adjust things as your life changes.
Most importantly, be kind to yourself. Understand that the road to becoming independently wealthy is a long one that will take years, if not decades. Find ways to keep yourself motivated to save and accountable, but also take time to enjoy life along the way.
Living below your means is critical to becoming an everyday millionaire.
Put simply, living below your means is ensuring that your expenses don’t outpace your income. But beyond the simple, you’ll need to live far below your means if you hope to become independently wealthy.
Many of those pursuing this goal can save 40 to 50% of their income and devote those savings to investments.
We’ll talk more about saving below, but the takeaway here is that the further below your means you can live, the faster you’ll be able to reach your goal.
Part of living below or within your means and working toward becoming independently wealthy is paying down existing debt and avoiding new debt.
It’s important to note here that not all debt is created equally. For instance, student loans spent pursuing a degree that will result in a high-paying job or taking out a mortgage to fund a home are typically considered debt that will help you.
When we say avoid debt, we mean going into debt to purchase things that depreciate or that may only add temporary value to your life. Similarly, you want to avoid debt that forces you to pay a high interest rate, such as with credit cards.
Examples of the type of debt to avoid include:
- On depreciating assets such as cars
- Credit cards
- Student loans on degrees that won’t result in a job that will allow you to repay the loans
- Payday loans
As previously mentioned, it’s important to enjoy yourself once in a while along the journey, but don’t go into debt to do so.
The other side of the coin from paying off debt is increasing your income. In fact, when you boil it down, these two things are the only ways to get more money: decrease your debt or increase your income.
For some, increasing your income may be the only way to put yourself on the road to becoming independently wealthy. You can only cut so much from your budget, after all.
You can increase your income in several ways. Some potential ways include:
- Going back to school
- Learning new skills
- Asking for a raise
- Changing jobs
- Hacking your 9–5
- House hacking
- Starting a business
- Starting a side hustle
- Get a second job
Whatever method(s) are most viable for you, increasing your income is the most efficient way to increase your savings rate and give yourself a boost on your path to financial independence.
As you work to pay off debt and increase your income, it’s also important to ensure you’re building up your resilience to financial hardship by establishing and building a robust emergency fund.
In fact, having an emergency fund is so important we would recommend building an emergency fund BEFORE you begin aggressively tackling any consumer debt you may have.
Start small and save whatever you can per month until you’ve built up an emergency fund that can cover AT LEAST 3 months’ worth of expenses. Eventually, build that fund up to 6 months’ worth of expenses. Park this fund in a short-term savings account that will allow it to still work for you but be relatively safe and accessible when you need it.
No matter how much you make or how much debt you’re paying down, an unexpected job loss or emergency expense can derail your plans quickly and set you back years. Shield yourself from these unknowns with an emergency fund early on in your journey.
Now that you’ve built a budget, are tracking your net worth, paying off debt and increasing your income, and have a robust emergency fund, it’s time to start or up your investments.
Saving money is a great start, but it won’t make you independently wealthy. The key is to put your money to work so that your money begins making money. Investing in the stock market and other ventures like real estate not only allows you to make a nice average return over the years but allows you to begin making money on those returns with compound interest.
If you’re unsure how to invest or where to start, there are tons of great resources out there to help you. The easy way to invest is to park your money in index funds (own a portion of all companies in the index) or target-date funds (automatically readjust risk level as you get closer to the target date).
If you’re still unsure after doing your own research, find a trusted individual or financial advisor to help you.
Also, consider investing as a long-term game and avoid getting rich quick schemes, especially with individual and penny stocks. Index funds will beat the majority of day traders over time.
As for what sort of investments you should consider, we recommend investing in retirement accounts first and then other forms in roughly this order:
- Invest in employer 401(k) at least to the company match
- Traditional or Roth IRA
- 403(b) or equivalent account for government/state employees
- Taxable brokerage account
- Real estate or other alternative investments
As for places to park your investments, your employers will typically have a list of partner companies for your 401(k), 403(b), or other employer-sponsored accounts that you can choose from.
Vanguard is often recommended by personal finance experts for an IRA or brokerage account due to their low fees for self-managed accounts. Still, there are other options as well, including a plethora of investing apps that make it easy to get started and manage your accounts.
Arguments can be made for and against buying a home, but the evidence overwhelmingly suggests that owning a home is a helpful step in becoming independently wealthy.
The vast majority of millionaires not only own homes but invest in real estate as well. In fact, around 90% of millionaires have become independently wealthy through real estate investing.
Being as real estate is one of the primary vehicles through which people reach millionaire status, it makes sense to have owning a home as one of your goals on the way to becoming independently wealthy.
Is owning a home necessary to become independently wealthy? No. Is it helpful? Extremely.
10. Take Care of Yourself
Hustle culture, or the idea that we should constantly be working, can quickly become toxic. Yes, you’ll need to work hard to achieve financial independence, but you shouldn’t do anything that might sacrifice your ability to enjoy your wealth.
While it may prolong your journey, it’s important to sacrifice work time to get enough sleep, exercise, eat healthily, and do things you enjoy.
True, a few years of sacrifice can pay huge dividends, but remember that the path to becoming independently wealthy will likely many years and even decades. Be careful not to ruin your health along the way.
Moral of the Story
Can you become independently wealthy?
While it may not seem like it, the answer is likely yes. With a plan, persistence, and patience, almost anyone can become independently wealthy if given enough time.
Use the 10 tips above to help you focus on what you’ll need to do to set you on the path to financial independence and do what you can at whatever pace works for you.
Even if you never end up reaching the independently wealthy status, you’ll put yourself and your family in a far better financial position than you would had you not started the journey.
As the old saying goes:
“Shoot for the moon. Even if you miss, you’ll land among the stars.”
Talk about Wealth Earned.
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