A Guide to Financial Independence

At this time of year, our thoughts turn to the birth of our nation and the joys of independence.

As you celebrate this year, take a moment to consider your own independence, which is closely tied to your financial situation.

Put simply, financial freedom would be a situation where money is not something that occupies your time like worrying about how to pay for obligations and how to achieve finance-related goals.

Here are some tips to achieve less stress and move you a little closer to the goal of financial freedom:

Take Stock of Your Present Situation

If a tiger showed up at your doorstep, you would have a few options. Hide from it, pretend it wasn’t there, run from it, face up to it, or fight it. The “tiger” of financial problems is something that sits on a lot of our doorsteps. The best way to overcome it is to face up to it. You’ll never climb a mountain if you pretend it doesn’t exist. Take a good look at your financial situation as it is today. How much do you owe? How much do you earn? What are your spending habits? Are you saving for the future?

Decide What You Want for Your Future

Without a clear idea of what you are working toward, it’s highly unlikely that you’ll achieve it. Sheer luck might get you there, but unless you have specifically stated goals and a plan to go step by step and keep moving forward toward them, your goals will probably not be reached.

As an example, let’s assume that retirement is the thing that tops the list of goals. How much do you need? Realistically, what will you need to live comfortably in your post career years? Come up with a number and a date by which you want to have saved that exact amount. This gives you a goal from which you can work backwards in setting up minor goals which make up that major goal. It also gives you a timeline to work with.

Work Your Plan Every Day

Now that you have your goals clearly stated and a plan to get there, put them into action. Everyday. Do something that moves you toward that goal. And before you know it, you will have made major strides in the direction of financial freedom.

There are many ways to achieve your goal. Incorporate these good financial habits into your daily life, and you will find it much easier to make it a part of your future:

Pay yourself first

To reach financial independence, you will need to put yourself first. You need to prioritize saving ahead of everything else. Americans on average have a shockingly low amount in their savings accounts. More than half of Americans (57 percent) have less than $1,000 in their savings accounts. Save before you pay the utility bills, buy groceries, or even pay the rent. Paying yourself first encourages you to live on a smaller budget, and it’s a powerful saving habit. Funding an employer-sponsored 401(k) plan is a great way to get started. The contribution will be deducted right out of your paycheck, so you won’t even miss it. Living with what’s left after paying yourself is a great way to build wealth.

Get rid of debt

American consumers now carry a total of $747 billion in credit card debt (over $16,000 on average per household). If you use credit cards to buy consumable goods and carry a balance, you are enriching the banks, not yourself. The first step toward financial independence is to get rid of high interest debts, and free your money to work for you instead of the banks.

Control your spending

The real key to financial independence is to spend less than you earn.  Track your expenses for a few months, and find out exactly where your money goes. Then see where you can cut out things you don’t need. Keep ‘lifestyle inflation’ to a minimum.

Look for extra sources of income

The more you make, the more you can save. We live in an era of side-hustles. There are so many ways to earn extra income today. Every extra dollar earned could be another dollar saved. Work both sides of the equation to widen the gap between spending and income.

Invest

Once you have some money saved, start investing, and let that money work for you. That way you’re accumulating wealth over the long haul. A conservative, sensible middle-ground approach is the way to go in terms of long-term returns. Slow and steady wins the race, as they say.

 

 

IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC.