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There’s no one-size-fits-all when it comes to being financially independent.
For some, being financially independent means breaking free from reliance on financial support from loved ones, setting up your own bank accounts, and moving out of home.
For others, financial independence means retiring comfortably well before the traditional retirement age of 65.
In this guide, we'll explore key money habits to help pave your way to a more financially independent lifestyle.
1. What does financial independence mean for me?
2. What’s my next financial goal and how much do I need to save for it?
3. How much money do I need in savings to feel financially independent?
4. What's my retirement goal, and when do I want to achieve it?
Once you understand your big picture goals – set yourself clear, achievable targets that will help you get there.
A good place to start is by logging each of your living expenses, like a gym membership, insurance, groceries, streaming services, provider bills, and so on. You might find that by doing this, there are opportunities to cut some of your expenses.
Once you know how much you’re spending on expenses, you can work out how much you want to spend on your lifestyle and how much is left over for saving or paying off debt.
If you’re not sure where to start, get to know the 50/30/20 budgeting rule. The idea is to split your after-tax income into three ‘buckets’:
• 50% for needs,
• 30% for wants and,
• 20% for savings or paying off debt.
You can read more about the 50/30/20 rule here. If you’re still not sure how to start, check out our Savings Calculator and Budget Tracker.
Just make sure to check for any fees or limitations before making extra repayments on a loan.
If you’re not sure about the right savings method for you, here are just a few ideas:
As well as creating a positive financial habit, it also means that when you do start renting, you’ll have a healthy sum of money ready to cover your initial rental payments or your security bond.
Unlike a savings account, you can’t deposit or withdraw money from your term deposit or receive the interest earned until the term is complete.
At People’s Choice, we offer a Personal Term Deposit with terms ranging from two months to five years, and a minimum opening deposit of $5,000, or $1,000 if you’re under 25.
When considering how much you want saved in your emergency fund, consider how much you would need to live off should you be out of work for several months.
It’s important to protect your rainy day fund from impulse withdrawals. Most banks will be able to set up a savings account for you that is deposit only - meaning money can’t be withdrawn unless you contact the bank to request this.
Even putting a little bit of money aside each week, either into a savings account, term deposit or your superannuation, can make a big difference to your retirement fund.
To make sure that your hard-earned money is working equally as hard for you, consider keeping your funds in a high interest rate account.
Take our Dream Fund for example, which rewards members with bonus interest when you grow your account balance each month.
It essentially means working out how much passive income you will need to be able to live post-retirement and making the necessary sacrifices in your current lifestyle to achieve that.
There are a lot of factors to account for when planning for retirement, like inflation and cost of living, so you may want to consider chatting with a professional about creating a personalised retirement plan.
For some, being financially independent means breaking free from reliance on financial support from loved ones, setting up your own bank accounts, and moving out of home.
For others, financial independence means retiring comfortably well before the traditional retirement age of 65.
In this guide, we'll explore key money habits to help pave your way to a more financially independent lifestyle.
Define your goals
Before embarking on your financial independence journey, it’s important to understand your ‘why’. You may want to ask yourself:1. What does financial independence mean for me?
2. What’s my next financial goal and how much do I need to save for it?
3. How much money do I need in savings to feel financially independent?
4. What's my retirement goal, and when do I want to achieve it?
Once you understand your big picture goals – set yourself clear, achievable targets that will help you get there.
Set up a budget
While ‘budgeting’ might not be everyone’s idea of fun, it’s a valuable piece of the financial independence solution.A good place to start is by logging each of your living expenses, like a gym membership, insurance, groceries, streaming services, provider bills, and so on. You might find that by doing this, there are opportunities to cut some of your expenses.
Once you know how much you’re spending on expenses, you can work out how much you want to spend on your lifestyle and how much is left over for saving or paying off debt.
If you’re not sure where to start, get to know the 50/30/20 budgeting rule. The idea is to split your after-tax income into three ‘buckets’:
• 50% for needs,
• 30% for wants and,
• 20% for savings or paying off debt.
You can read more about the 50/30/20 rule here. If you’re still not sure how to start, check out our Savings Calculator and Budget Tracker.
Create a plan to pay off debt
One important element to financial independence is living free from debt. Generally, the sooner you can pay off debt, the sooner you can minimise how much interest you’re being charged.Just make sure to check for any fees or limitations before making extra repayments on a loan.
Smart ways to save
Establishing smart savings habits early on is important when it comes to creating a financially independent lifestyle.If you’re not sure about the right savings method for you, here are just a few ideas:
1. Budgeting for rent before moving out
If you’re looking to rent for the first time, it’s never too early to start putting your rental payments away in advance.As well as creating a positive financial habit, it also means that when you do start renting, you’ll have a healthy sum of money ready to cover your initial rental payments or your security bond.
2. Create a term deposit
A term deposit is a way to invest your money, by locking away a lump sum of money with your financial institution for a set period of time at a fixed interest rate. If you’re saving for something significant, like retirement, and don’t need quick access to the funds, this could be an option for you.Unlike a savings account, you can’t deposit or withdraw money from your term deposit or receive the interest earned until the term is complete.
At People’s Choice, we offer a Personal Term Deposit with terms ranging from two months to five years, and a minimum opening deposit of $5,000, or $1,000 if you’re under 25.
3. Save for a rainy day
In the unfortunate event that life takes an unexpected turn, consider having an emergency fund for unplanned expenses.When considering how much you want saved in your emergency fund, consider how much you would need to live off should you be out of work for several months.
It’s important to protect your rainy day fund from impulse withdrawals. Most banks will be able to set up a savings account for you that is deposit only - meaning money can’t be withdrawn unless you contact the bank to request this.
4. Invest in your retirement
It’s never too early to be thinking about how much money you’d like to have for retirement.Even putting a little bit of money aside each week, either into a savings account, term deposit or your superannuation, can make a big difference to your retirement fund.
To make sure that your hard-earned money is working equally as hard for you, consider keeping your funds in a high interest rate account.
Take our Dream Fund for example, which rewards members with bonus interest when you grow your account balance each month.
What is F.I.R.E (Financial Independence, Retire Early)?
F.I.R.E (Financial Independence, Retire Early) is a financial planning method for people looking to retire much younger than the traditional age of 65.It essentially means working out how much passive income you will need to be able to live post-retirement and making the necessary sacrifices in your current lifestyle to achieve that.
There are a lot of factors to account for when planning for retirement, like inflation and cost of living, so you may want to consider chatting with a professional about creating a personalised retirement plan.
