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How to become financially independent

If you've ever worried about your future and whether you'll be able to retire and live comfortably, you're not alone. Financial independence can help you alleviate and avoid financial worries and difficulties in the future. If you're committed to your journey in becoming financially independent, we can help you take your first steps in getting there.

What is financial independence and why is it important?

Imagine for a moment: what would you be doing with your life if you didn't have any financial pressure? Would you still keep the same job? The same hobbies? Same lifestyle?

Financial independence means something different for everyone. For some, it's simply being self-reliant and not having to get your family to help with money. For others, it's a sense of security that your needs are looked after no matter what happens. And yet others will see financial independence as the point you've truly "made it" and not have to work for someone else.

What's common in all these definitions though? It's the fact that you'll get more freedom, so you can focus on what truly matters to you.

To achieve this, you need to be in control of your financial situation by cultivating healthy financial habits and developing a good understanding of how money works. These skills will help you learn how to manage your money effectively.

How do I manage my money to reach financial independence?

Money management plays a huge role in helping you reach financial stability and independence. Staying on top of your financial situation will help you navigate rising costs of living and the pressures caused by social, economic and environmental factors that might be beyond your control.

It's important to examine your behaviors and attitudes towards your personal finances. To help get you started, here are a few questions to reflect on:

  • Are you living within your means?
  • Do you keep track of how much you spend on a weekly or bi-weekly basis?
  • Are you saving money for emergencies? Or do you spend all your money as soon as you get it?
  • Would you be able to cover unexpected medical expenses?
  • Are you saving for retirement? Do you know how much you will need to save for the retirement lifestyle you want?
  • Are you putting away money for your annual taxes?
  • Do you pay your debts on time?

If you're unable to answer any of the above questions, don't worry. We're here to offer guidance. The first step to financial health is to be aware of your situation. If you've gone through the questions, you're already taking a positive step towards your financial independence.

Where do your financial habits and behaviours come from?

Have you ever wondered how some people can easily maintain financial stability while others seemingly struggle to pay debts but always have cash for a night out? Interestingly, studies show our financial habits are inherited from our parents [1][2], whether it's paying our bills on time, our comfort levels in taking up debt and putting money away for a rainy day.

If you find your habits aren't great for wealth stability, then there isn't a better time than the present to start building healthier financial habits.

What steps can I take right now to get me on the way?

You don't have to wait for some magic moment in the future to get started. Here are a few things you can start doing right now that will help you avoid financial difficulties in the future.

  1. Make a list of your income and fixed expenses (things like rent) or liabilities (credit card debt, mortgage, etc). This will help you understand how much you have and how much you owe.
  2. Set reasonable budgets and start tracking your expenses.
  3. Cut back on non-essential purchases.
  4. Consider your credit score. Automate your bill payments wherever possible to avoid late payments, especially your credit card bill, because the interest levels for that are likely to be higher.
  5. Set a monthly savings goal for emergency funds.
  6. Set aside money for retirement.
  7. Set short-term and long-term financial goals (a short term goal could be paying your bills on time or cutting down your expenses).
  8. Review your finances regularly (on a weekly or bi-weekly basis).
  9. Read financial education materials to help you on your journey.

Patience and persistence are key. Researchers from University College London found the average time it takes for a new habit to stick is 66 days, but individual times varied from 18 to 254 days[3]. Needless to say, building healthier financial habits will take time and effort, but the rewards are well worth it.

What else can I do to become financially stable or financially independent?

Share your goals with someone close to you (a family member, close friend or partner) and let them know you're changing your habits. Ask them to check in with you regularly – you can even embark on this journey together and keep each other accountable. Whenever you encounter challenges, keep your end goals in mind to stay motivated.

Finally, remember to seek professional help if you need debt restructuring or financial assistance. We also recommend honing your financial literacy to help you on your way. You can start learning about investing for income, healthy borrowing, short- and long-term savings or investment plans and protecting yourself and your loved ones in case of illnesses and emergencies.

Taking things a step further

If you're an existing customer, log on to online banking to do a financial health check. This will help you better understand your financial situation so you can adjust your habits or establish realistic savings goals.

If you're not an HSBC customer, you can still browse through our money management resources.