Having enough assets that generate passive income can cover your expenses over the long-term. This includes investments that pay you a steady stream of dividends, rental income from properties or earnings from business ventures. It’s the key to breaking free from the paycheck-to-paycheck cycle and pursuing your goals without the constraints of traditional employment.

Building financial independence through investments is central to the financial independence path. A common guideline is to save and invest enough to generate passive income of 25 to 30 times your annual expenses. Online tools can help you determine your specific target based on your spending habits and lifestyle, investment time horizon, and risk tolerance.

Building Financial Independence Through Investments: A Proven Approach

Once you’ve reached the point where your investment income covers all your fixed and discretionary expenses, it’s time to make the switch from paycheck to retirement. For most, this means taking a gradual step down from full-time work, either through retirement savings accounts or by reducing hours at your current job.

A major roadblock to achieving financial independence is debt, and the first step in eliminating it is to prioritize paying down higher-interest debt such as credit card balances and mortgage loans. Once this hurdle is overcome, you can focus on building a savings habit and investing more aggressively.

Creating an emergency fund is another important milestone in the financial independence journey. Having three to six months’ worth of expenses saved up will allow you to stick with your budget even when life throws you a curve ball, such as an unexpected medical expense or car repair bill.