Cary,NC- After the traditional celebrations of our Independence Day are over, individuals who take a step back and contemplate their financial independence will have even more to celebrate. It is a great time of year to evaluate your financial situation and determine if you have control over your finances.
Many Americans find themselves living paycheck to paycheck, constantly playing catch-up on credit card bills, and most importantly, not saving for the future. If this sounds like you, here are four tips to help you become financially independent.
1. Lose the Liabilities
At some point or another, most of us have accumulated some type of debt. Whether the debt is from student loans, medical bills, mortgages, credit cards or anything in between, the first step to achieving financial freedom is to take control of your debt.
The first step is setting up a plan geared towards paying off the debt in as little time as possible, which will also aid in avoiding excessive interest payments. Prioritize your plan based on the loans or credit cards with the highest interest rates and highest balances.
For a confidence boost, pay off smaller balances early on so you can cross some things off your monthly payment schedule. These accomplishments will empower you to continue paying down your debt, and feel good about making progress.
The worst strategy is simply paying the bare minimum each month or nothing at all. Late fees and interest payments will only put you deeper in the hole.
2. Set Up An Emergency Savings Fund
You never know what the future will bring, so having an emergency fund that ideally covers 6-8 months of living expenses is essential. Today’s rocky economy marred by stalled hiring and market fluctuations is reason enough to have reserves. Economy aside, different circumstances in your life will occur that, more often than not, require access to extra cash. That’s why it’s important to diligently contribute to an emergency cash fund.
This is especially important for younger workers without families, who intend on having one someday. The pressures of raising a family often takes precedence to saving, so for those who have not yet started their families, sock away as much as you can now. If something unexpected does happen, you’ll be thankful you did.
3. Make Retirement A Priority
Once you’ve established a short-term emergency fund, it is equally important to begin saving for retirement. Everyone has an opinion of how they want to spend their retirement, but one thing is for certain, the earlier you save the better. It’s never too early to think about retirement.
To accomplish that, individuals who are working should aggressively contribute to a retirement fund, whether it’s your company 401(k) or an IRA or both. The allocations in these retirement funds should remain diverse across asset classes to reduce risk.
Once you’ve saved for awhile, you should have accumulated a sizeable nest egg. Consider putting a portion of your savings into a safe account, like an annuity, that you can rely on for income throughout your retirement.
4. Just Forget The Joneses
Many Americans are so concerned with appearing affluent and acquiring the latest gadgets, trendy clothes and flashiest cars that they nearly drive themselves to poverty! Differentiate what you need from what you want, and prioritize your expenses by what is essential, not by what will allow you to keep up with the Joneses.
By following these tips to achieve financial freedom, you will break the cycle of living paycheck to paycheck and constantly falling behind on bills. Remember that it won’t happen overnight, but once you commit to being financially independent, you will lead a happier and more relaxed life.