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5 simple steps to financial independence

Financial independence. If you ask 100 different people you’ll probably get 100 different answers as to what it actually is.

To me, it’s the ability to do what I like, when I like. If you love your job, that means continuing to work but with a strong safety net behind you.

The idea sounds great, but to many people financial independence can seem like a pipe dream.

Here are 5 simple steps to help anyone start working towards a stress-free retirement today.

1. Slash your expenses

This is a biggie. If you want to achieve financial freedom, having a good hard look at your current expenses is key.

You don’t have to go to austerity, eating beans and rice and listening to the radio.

However, you should look at what you’re spending and where. Have a think about whether you’re really getting good value from that Netflix subscription or lunches out everyday.

2. Pay down “bad” debts

Bad debts can be a financial independence killer. Credit card and other personal debts can quickly spiral out of control.

If you want to achieve financial freedom, paying down those high-interest debt obligations is an important step.

Look at balance transfers to low or no-interest cards and direct any spare cash towards paying down those bad debts.

3. Make a budget

Once your expenses and bad debts are under control, it’s time to make a budget.

Unless you’re very disciplined, it’s hard to achieve financial independence without some sort of budget. It’s a little bit like trying to drive to an unknown destination without a map.

I like to sit down and make a budget of income, expenses and your personal “profit” each year. This will let you plot out how much of your income you’ll have left for investments.

4. Save a consistent portion of your income

It’s easy to splurge when you first see that income hit your bank account. Achieving financial independence doesn’t require magic, but it does require discipline.

Rather than spending that money, make sure that you save it. If you can consistently save a good portion of your paycheck, you’ll be well on your way to financial freedom.

5. Invest, invest, invest!

Now that you’ve got your personal finances sorted, you can start to invest in some ASX shares!

There are endless opportunities for investing and generating returns for the future. There are hot tech shares like Afterpay Ltd (ASX: APT) or dividend shares like Commonwealth Bank of Australia (ASX: CBA).

If you’re just starting out, a diversified exchange-traded fund like Vanguard Australian Shares Index ETF (ASX: VAS) could be of interest.

Whatever you choose to invest in, make sure you stay disciplined and invest for the long-term.

To turbocharge your financial independence dreams, re-invest any dividends for strong compounding returns.

Foolish takeaway

This is just a quick guide to help investors make their financial independence dreams a reality.

Increasing income can be challenging, particularly given the current economic landscape, but by slashing expenses and making a budget you’ll already be making positive steps in the right direction!

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Motley Fool contributor Ken Hall owns shares of Vanguard Australian Shares Index. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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