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Forget Meghan and Harry! This is how you can become financially independent

The newspapers and internet are giving us overkill on Meghan and Harry, after the Duke and Duchess of Sussex announced their plans to become financially independent from the Royal family.

Financial independence is something us commoners should be aiming for as well.

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State of independence

We have a harder job on our hands. Meghan had estimated wealth of $5m even before she met Prince Harry, who is worth around £30m. They also receive income of £2.3m a year from the Duchy of Cornwall, at least for now. Also, while you and I can happily holiday on Ryanair or easyJet, they can pop on a private jet and spend six weeks in a multi-million dollar seaside property, free of charge. That keeps costs down.

But don’t be deterred, you can still achieve your own financial independence, if you tighten your belt and save hard to achieve it.

An increasingly popular global movement called Financial Independence, Retire Early (FIRE) reckons almost anybody can do it, provided they slash their spending to the bone, and invest every penny they can, as soon as they can.

It reckons that you don’t have to be super-rich to achieve financial independence and the freedom to decide how to live your life, without being chained to your job. Your target is to build up a pension pot equivalent to 25 times your estimated annual living expenses, whatever they happen to be.

Live within your means

So if you can live happily on £20,000 a year and have a pot worth £500,000, then congratulations, you are financially free. That calculation is underpinned by something called the 4% rule, which states that if you withdraw 4% of your invested wealth each year, and your portfolio grows at 7%, it will never run dry.

That applies whether you are 40, 50, 60, 70 or whatever. You may have to take less than 4% if stock markets correct, but the theory broadly holds good.

Naturally, if your tastes run to private jets and other trappings of the oligarch lifestyle, you will need to save more. Ultimately, it comes down to how much you personally need to feel happy and fulfilled.

Get FIRE-d up

FIRE followers attempt to save at least 50% of their annual income. If you can manage that, you can hit the 25 times target in just 17 years. That’s wildly unrealistic for most of us, but you can stop wasting your money on tat you don’t need and invest as much as you can.

Do not simply stick it in a Cash ISA, as then your money will not grow fast enough. Stocks and shares remain the best placed to build long-term wealth, with average annual terms of around 7% a year.

It makes sense to save free of tax, inside a Stocks and Shares ISA. You could build a portfolio of stocks and shares, or keep things simple with tracker funds covering indices such as the FTSE 100. Stick at it, and one day financial independence could be yours.

That won’t get you into the papers, but looking at the response to Meghan and Harry’s independence bid, that’s a good thing.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.