How to Become Independently Wealthy

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Wouldn’t it be nice to never have to work another day in your life? For most people, this comes during retirement. However, younger generations are increasingly striving to ditch the workforce even sooner.

Independent wealth is the key to eliminating having to work to get by. Those who are independently wealthy are able to build a life without relying on earning an income.

This article will cover what independent wealth is and how you can build it for yourself.

The Short Version

  • Independent wealth stems from having enough financial resources to eliminate the need to work to earn an income.
  • Those who aren’t born into money likely need to overcome significant social and psychological barriers to building wealth.
  • Becoming independently wealthy is not a destination; it’s a lifestyle.

What Does It Mean To Be Independently Wealthy?

A person with independent wealth often has multiple sources of income to draw on including investment returns, revenue generated from assets, business income, or other passive income streams.

Becoming independently wealthy means you no longer have to work to earn an income that covers your living expenses. You have enough saved up through investments or constant cash flow coming in from revenue-generating assets where you don’t need monetary support from other people, including an employer.

Independent wealth allows you to live life how you want, where you want, and do things according to your own schedule. It's the ultimate form of time freedom because you are no longer obligated to perform tasks, provide services, or create products to generate an income for yourself.

Read our starter guide>>>How to Invest $500: 2022 Guide to Begin Building Wealth

How Is Independent Wealth Different From Financial Independence?

Financial independence is similar to independent wealth, but there is an important distinction. Independently wealthy people have enough money that they can choose whether or not they want to work at all.

This is different from someone who has reached financial independence and has enough resources to live independent of a traditional 9-to-5 job. While they might not be dependent on an employer, they may still need to work to meet their needs.

A person with independent wealth often has multiple sources of income to draw on including investment returns, revenue generated from assets, business income, or other passive income streams.

Someone who has reached financial independence may have some income-generating assets but not enough to meet their needs. Instead of solely relying on an employer, they may be able to happily get by through freelance work or self-employment.

What Are the Barriers to Being Financially Independent?

The easiest way for a person to become independently wealthy is to be born into wealth. Generational wealth creates a stable foundation from which these individuals can meet their cost of living needs while choosing whether or not they want to work at all.

For those seeking financial independence, or greater time freedom, there are some significant barriers to overcome first before you can begin building wealth for yourself.

🚩Whether or Not You Have a Partner

Having a partner can make a huge difference when it comes to saving up enough money to become financially independent. Whether you’re married or in a committed partnership, having two incomes to support shared living expenses is better than one. Two incomes can also make it easier to apply for financing to acquire wealth-building assets like real estate or business loans.

Not everyone benefits from being partnered. Married women who leave the workforce to raise children are less likely than their partners to have their own bank accounts or retirement funds. Without a resume or a credit score, they can find it hard to establish their own financial identity, let alone become financially independent later on in life. This renders them fully dependent on a spouse for their financial well-being.

For more information on the gender investment gap, read our guide on How Women Can Invest in Each Other to Reach Financial Independence.

🚩Your Family's Financial Background

Whether or not you come from money can be a significant barrier for individuals aspiring to become independently wealthy. Things like debt or home ownership can take on a different meaning depending on the financial circumstances you’re born into.

Finances tend to be generational in nature. While you’ve probably heard about generational wealth or inheritances, it’s important to realize the same is also true with debt. Being born into debt can make it harder to pursue financial independence in much the same way that being born into wealth can make it easier.

In order to become wealthy when you haven’t been born into money, you have to overcome significant mental hurdles. This includes adopting a new mindset that lets go of scarcity in order to give yourself permission to acquire the wealth you seek.

Read more>>>How Can Emotions Affect Your Investing Decisions?

🚩Lack of Financial Education

Unless you are taking the time to educate yourself on finances, it can be difficult to build enough wealth to become independently wealthy. This is because wealth-building activities are a lot different than day-to-day consumer spending activities.

Debt is a good example of this. Average consumers think of debt in terms of credit cards and loans. Wealth builders, on the other hand, think of debt as a cost-effective way to leverage the bank’s money to buy appreciating or income-generating assets like real estate.

Read more>>>Debt Leverage: Beware of Leveraging Too Much for Investments

Studying advanced financial concepts is an important part of becoming independently wealthy. Unless you're born into a family that taught you these concepts from an early age, you’ll likely have to hit the books on your own.

🚩Systemic Discrimination in Society

Even if you do all the right things to work towards financial independence you might still find it difficult to achieve. This might not be any fault of your own. Instead, you might be struggling because of a number of systemic problems facing people of color, women, and other underrepresented members of society.

Owning a home is one of the easiest ways for people to begin building wealth. Housing is also notoriously plagued by redlining and other racial disparities. This has not only made it hard for people of color to own homes but even when they're able to buy property their assets could still be valued less than those of white people.

Here’s a recent example: In 2022, a black couple from Baltimore had their house appraised and then swapped places with a white friend to have it re-evaluated. When the home appeared to be owned by the white friend, it was appraised for a quarter of a million dollars higher than what the actual owners had it appraised for.

How To Become Independently Wealthy

Despite the challenges you might face in creating independent wealth for yourself, there are still a number of actions you can take that can get you heading in the right direction.

💡Figure Out How Much Money You Actually Need

A key driver of whether or not you are able to build wealth is home much your lifestyle costs. Achieving a level of independent wealth is different for each person. Someone can become independently wealthy quickly if they live a frugal life and save enough money to afford that type of lifestyle.

Figure out how much money you actually need by creating a baseline for yourself. Review your spending and take inventory of your assets. Once you do that you can create a plan to begin building wealth.

💡Let Go of Limiting Beliefs Around Money

Limiting beliefs you hold about money can shape whether or not you will find success in creating independent wealth. These beliefs aren’t things you created for yourself. More likely than not, your money habits were developed in childhood and are reinforced by the people you currently surround yourself with.

Letting go of limiting beliefs and a scarcity mindset you might have around money can help to free yourself for the journey of building wealth.

💡Seek Out Financial Education

Financial education is also an important component of becoming financially independent. Financial literacy is generally not taught in school. So unless you were born into knowledge or obtain it on your own, you might not know how to build wealth on your own.

Pick up a few books to study more about wealth-building activities such as investing or buying real estate. Seek out educational content on platforms like YouTube or enroll in courses to expand your knowledge on financial topics.

Look for resources that speak to you. While there are baseline financial concepts that can help anybody, you can also find online communities and experts who can speak to overcoming the barriers that are most relevant to women, people of color, LGBTQ+ and other minorities.

💡Eliminate As Much Debt As Possible

Debt, especially high-interest consumer debt, can make it difficult to build wealth. Just as investments grow through compound interest, so does debt. The more debt you have, the more it will continue to grow — and the harder it will be to eliminate.

Look for ways to get rid of your debt. Reign in spending and avoid charging things to your credit. Consider restructuring your existing deb. And moving forward, seek out loans with the lowest interest rate possible.

💡Have an Emergency Fund

One of the most important things you can do to stay out of debt and get on a path to building wealth is to have an emergency fund. This is a reserve of money you can use if you find yourself out of work with an unexpected expense like a major car repair.

An emergency fund can help you avoid taking on more debt to cover unplanned expenses. It can also give you the peace of mind you might need to embark on other wealth-building ventures such as starting a business.

Read more>>>Emergency Funds: What Are They and How to Set It Up

💡Spend Less Than You Make

Cash flow is another important factor to consider when developing a plan to build wealth. Spending less money than you bring in each month allows you to allocate resources toward wealth-building activities like investing.

Analyze your expenses and look for things to cut out of your budget. For some, this can be as simple as dining out less or spending less money on recurring subscriptions like Netflix and Spotify. But it may be much harder for others.

💡Increase Your Income

Reducing your spending is only part of the wealth-building equation. Looking for ways to increase your income can also give you access to more resources that can help you build wealth.

One of the easiest ways to do this is to start a side hustle in your free time. You can also look for freelance opportunities to supplement your W2 income. Avoid spending the extra money you earn and instead invest it into revenue-generating assets to help you build your wealth.

💡Invest Wisely for the Short- and Long-Term

Investing is the most important thing you can do to build wealth. However, it’s important to realize that not all investments are the same.

Some investment strategies rely on betting on a company to go big while others rely on generating high-income dividends. Learn about different investing strategies and how to build a portfolio that can generate passive income for you.

>>>>Read our guides for investing for the long term and the short term

The Takeaway

Warren Buffet is a paragon of independent wealth. He famously still lives in a modest family home in Omaha, Nebraska, and starts his mornings with a simple breakfast from McDonald’s.

Becoming independently wealthy is a way of life, not an end goal. Reaching a specific financial target such as saving $1 million is a great goal. But once you reach that goal it doesn't necessarily mean that it's time to splash out on a bigger home or a luxury car.

Following Buffet's example of living frugally and studying how to build wealth can go a long way in helping you not only become financially independent, but maintain your wealth once you obtain it.

Independent wealth is possible for anybody. Here's how to start off on the right foot>>>

Amanda Claypool

Amanda Claypool is a writer, entrepreneur, and digital nomad. She writes about wealth, blockchain technology, consumerism, and the future of work. She is a digital nomad currently based in Asheville, NC, and shares about her life on the road over on Substack. In her free time, she enjoys hiking, reading, and spending way too much time in local coffee shops.

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11 Comments

  1. Very well written article. I think you forgot to mention that wealth isn’t all just about money, it’s also about health. If you’re not focused on your health and just focused on making and accumulating money then sooner or later you’re going to have to pay a high price later on down the road when your health starts deteriorating and you start having health issues/problems that require treatment and those problems become a burden on your financial gains. For me, it’s Health>Wealth>Freedom.

  2. A blogger after my own heart.

    To me the question of “how much is ‘wealthy'” is not really the issue. The question is how much passive income do you need to generate to pay for the lifestyle you want. Part of this lifestyle might be to retire early. Now, there is a pretty important link between income and expenditure. Constistently and sustainably reducing the expenditure means you have more money to save AND your don’t need to save so much, so reaching your financial goals more quickly.

    Here are some of the concepts I use:

    Financial Freedom
    http://www.the-diy-income-investor.com/2011/07/financial-freedom-is-measured-in-years.html
    How much is enough?
    http://www.the-diy-income-investor.com/2011/03/how-much-is-enough.html
    Income Pyramid
    http://www.the-diy-income-investor.com/2011/01/income-pyramid.html
    Money Snowball
    http://www.the-diy-income-investor.com/2011/01/money-snowball-and-compound-interest.html

  3. I would like to add one extra goal.

    This one is in between “Emergency Savings” and “Financially Free”.

    It is “Freedom to do the work you love”. You have enough income from assets that you can choose to do the work that you really love to do, without looking at the income level it generates.

    For most people, it can take a long time to become “Financially Free”.

    But when you realize that you have achieved the “Freedom to do the work you love”, you can give an enormous boost to the quality of your life before you are “Financially Free”.

    And it is all about “life” and less about “financial”, isn’t it?

  4. The 4% number is not going to let you out last your life expedience unless your life expedience is less than 30 years. The 4% numbers comes from retiring at 65 and living to 90.

  5. $3.5 mil sounds good. I don’t know if I need that much though as there’s always income coming in somewhere, and I won’t have any debt in retirement as the houses will be paid off.

  6. I never identified myself or identified with wealthy people. They were always someone else. Using your definition of minimal distribution of retirement savings qualifies me as wealthy. I do realize I have more than most people and it probably is not all measured in dollars and cents.

  7. Wealthy was always someone else! Based on your definition, I am wealthy because I intend to withdraw at a 2-3% rate. I will be receiving enough from my pension and Social Security to not need that much from my retirement savings to live well.

    1. “Wealthy was always someone else!” can you explain what you mean by that?

      My argument has always been we are much wealthier than we realize. Especially compared to others around the world.

      The jet set millionaires and billionaires while more than likely richer than us aren’t the typical wealthy and fit into the UHNW (ultra high net worth) individuals.

  8. I love articles that deal with responsible planning to achieve financial stability. I wonder how certain this 4% figure is. I know this is the rule of thumb, but I wonder how long someone can afford to continue the 4% rate of spending in a bad market.

    1. I’ve seen posts on Boogleheads.org saying that the 4% rate is unrealistic. I somewhat agree currently, though historically should should be ok.

      At least right now, if you are retired or close to retired it really sucks with any fixed rate investment. Savers are definitely being punished, and even worse not keeping up with inflation!

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