Financial independence has a different meaning for everyone. For some people, it could mean never having to worry about money, while for others, it means relying on their income to pay all of their bills. While these are two very different definitions, both are possible by managing your personal finances. Financial independence simply means that your number one stress in the world won’t be caused by your financial problems.
Here are some easy tips to help you reach financial independence.
Start an Emergency Fund
You can use your savings as your emergency fund, for a goal, or both. The first step to reaching financial independence is to have a savings account, no matter how big or small. Ideally, you’ll want to add to your savings account with each paycheck you receive, even if it’s just a small amount. It’s important to put money into your savings when you can, and try to avoid spending on unnecessary items.
Pay Off Any Debt
Paying off debt quickly isn’t always possible, especially if you have a car note or student loan. You can easily start paying off your credit card debt if you feel like it’s an easier feat. You can also try the snowball method. This debt pay-off method involves starting with the smallest debt you have and paying off the bigger ones in order of their amount thereafter.
By paying off one entire debt one loan at a time, you can gradually work towards financial independence. You’ll feel better, and more responsible after each payment, and will likely be more motivated to keep up with your future finances.
It’s usually impossible to predict what the future holds, so it’s important that your savings grow over time. You never know when you might need some extra cash, plus, having a savings account that continues to grow exponentially is just effective finance management.
Once you pay off your debts, you can begin putting more money into savings. By building up your emergency fund, you can feel more secure and less stressed.
Save for Retirement
You should start saving for retirement as soon as possible. This allows you to accrue enough money by the time that you’re ready to retire, and will allow you to live confidently without your standard income.
Oftentimes, you will be charged a late fee if you don’t pay a bill by it’s due date. This type of fee can come from a late credit card payment, a late loan payment, and even not paying taxes on time. Make sure to avoid these fees and you could save yourself hundreds of dollars a year. If you’re not sure about when a bill is due, consult your recent statements. You can find these statements online, in your email, or in the mail, depending on the preferences that you selected.
Take Advantage of Tax Deductions
If you’re self-employed or allowed to take tax deductions, make sure that you take as many as you can. This will set you up to pay less on your taxes each year. If you need help determining what’s considered a deduction, you can use a professional tax software, or hire a CPA to help you with quarterly and/or annual taxes.
It’s also important to take advantage of any tax credits that you might qualify for. Doing so will allow you to save on your overall tax bill, and give you extra cash to pay off any debt or just grow your savings.
Get a Second Job or Find a New Job
If you find yourself unable to make ends meet with your current job, try looking for a second job to add to your schedule. Doing so will allow you to have some extra money needed for necessities like rent and other bills. If a second job isn’t possible with your current schedule, you may want to look into a new job altogether. There’s no harm in applying to or searching for other jobs while you continue to work, and although it may be hard to leave your job, you should do what’s ultimately best for you.
Avoid Consumer Debt
Financial independence isn’t possible when you have consumer debt looming over your head. If you use credit cards to buy anything and carry a balance, you’re losing valuable money. Credit cards, payday loans, and car loans simply generate money for creditors, not for you.
We know that it isn’t always possible to avoid consumer debt– everyone needs a car, after all. However, there are some cases where you can avoid it. If you’re shopping at a store and they offer you a credit card, avoid taking the offer no matter how much they give you off your purchase. The more debt you build, the more you’ll have to pay off, and the more you’ll negatively impact your credit score in the process.
Don’t Compare Yourself
Comparing yourself to others is a difficult habit to break. Your friends may have more money than you, which allows them to purchase more expensive items. Instead of purchasing things just because someone else has them, consider your current situation. If purchasing an expensive item will only make you more stressed in the long run, the purchase simply isn’t worth it. If your friends are truly your friends, they won’t care about the items you choose to purchase.
Spend Less Than You Earn
Easier said than done, spending less than what you earn allows you to save money and grow your savings. If you only earn enough to make ends meet to pay for your rent, groceries, and basic necessities, it’s time to look for another job or a job that offers more pay. Again, this is easier said than done, so you may have to consider cutting out things that are holding you back. For example, do you really need subscriptions to Netflix, Hulu, HBO, and Showtime?
Put Yourself First
To become financially independent, you’ll sometimes need to put yourself first and prioritize saving. Putting yourself first can be something as simple as asking your family to make gifts instead of purchasing them for the holidays, or it can mean adding to your savings before paying your rent. Paying yourself before anything else allows you to more easily live on a small budget.
Once you have enough money to start investing, you should do so immediately. Investing allows you to generate passive income. You can invest in a savings account, the stock market, or even rent out a property. By accumulating wealth in the long run, you’ll be better off for retirement.
Budget and Be Flexible
Your budget and how well you stick to it will determine how soon you can reach financial independence. Budgeting requires a lot of planning, but is worth taking the time to figure out. Of course, budgets can’t be too strict since life can be unpredictable. You never know when your car is going to break down, or when there will be an emergency, so it’s important that you keep your budget open to changes. That way, when you need money the most, you’ll have it available, and won’t add any unnecessary stress to your life.
About the Author
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. Matt is passionate about marketing and business strategy and enjoys San Diego life, traveling, and music.