Achieving Financial Independence
Financial independence is generally defined as having the means to pay your living expenses for the rest of your life without having to work full time. There are real paths towards this, and they’re not all the same. Some people achieve this through long term saving and investing, some people are able to build businesses that can survive without daily supervision. Getting to your financial goals is all about finding ways to cut costs, and make more money.
Most Americans are way behind when it comes to saving for retirement, or savings period. While it is possible to achieve financial freedom, every dollar needs to be allocated for a purpose. Whatever your goals may be, here are some ways to ensure that you aren’t working up until lunch on the day of your funeral.
Make your financial independence your first priority. After you’ve budgeted, you’ll have a better idea of how much you can put away each month. Make that the first thing you do. Once you separate out your money first, you’ll be able to better learn how to live on a smaller budget.
Spend less than you earn. This should be standard procedure but many people think that as long as they have credit, that means they can afford items that they really can’t. Creating a realistic budget will help you manage this. If you know exactly what you’re bringing in, you can gauge a better idea and create limits for how much you can put out.
While sitting down and analyzing your finances may not sound like your personal idea of a good time, it’s a necessity you will thank yourself for doing later. Create a budget and look for ways to cut back on expenses. There may be better options for many of your bills such as car insurance, phones, and utilities.
Don’t try to keep up
A lot of people spend money on home and personal items specifically to keep up with their friends and neighbors. Impressing other people is not a reason to dig yourself into a hole. Focusing on building your finances and learning what you can actually, presently afford will take you significantly farther in leaving them all behind financially, instead of simply having the appearance of it.
If you use credit cards to buy consumable goods and regularly carry a balance, then you are enriching banks and not yourself. Creditors use credit cards, payday loans and car payments as money generating machines for themselves, they are not here to help you in any way. The first step towards your financial independence is to pay off high interest debts and free your money up for yourself instead of for the banks.
A simple plan towards paying off credit card debt is to use the avalanche method. In the avalanche method you make the minimum payment on each account and allocate extra funds towards the account with the highest interest rate first. Every time you pay off an account, you’ll have more money to put towards your next one. Keep doing this until they’re all paid off.
Invest in assets that grow in value over time. Items such as stocks, art and properties are generally good ways to get your money to work for you. Smart investments have helped many people build wealth. When you invest your money, it makes money for you. Compound interest from stocks really adds up but you have to keep investing through good and bad years.
Even if you have to use the cookie jar approach at first, a little can add up to a lot over time. Start putting away change and small sums of money, and as it builds up, invest it into stocks or other opportunities where it can grow. Starting somewhere is better than never starting at all.
Check in with your finances regularly and be able to make adjustments as needed. Life can throw you some curveballs, so be aware when an emergency financial situation comes up ( like the loss of a job or a medical bill) and make a quick adjustment so you don’t get overwhelmed.
Take a look at your billing statements regularly. You could find that you have recurring payments that you didn’t even know were happening. If you’re budgeting for your family and not just yourself, you also need to have a meeting with them when implementing a budget to make sure everyone is on the same page.
Build a Business
While it’s possibly the most difficult way to gain financial freedom, it can be one of the most rewarding.
If you have a marketable skill or product that you could build a business around, you might consider building a business. It doesn’t even have to be an all or nothing endeavor. Your business could be something you do on the side of your full time job. Creating an alternative income stream can help you arrive at your financial independence a little sooner.
There’s no time like the present to start your retirement fund. If your employer offers a traditional 401(K) plan and you are eligible for it, it allows you to contribute pre-tax money, which is a huge advantage. You should also take full advantage of your employers 401(k) match, otherwise you’re just leaving money on the table.
You should also consider opening in individual retirement account (IRA) to help build your retirement savings.
Automate Your Savings
Every area of personal finance will recommend automating your savings. Too many people fall into the habit of attempting to save whatever is leftover after paying bills and buying unnecessary items. Paying yourself first is the best way to make sure that you are putting away money regularly and not spending it on things that you don’t need. You could also end up saving more money in the long run if it’s automated because you no longer have to overthink that transaction. It’s already happening and you’re expecting it, so you can move on to other things.