Five Steps to Declare Your Financial Independence
Are you ready to revolutionize your fiscal plan and attain financial freedom?
In 2019, an AARP study found that 53% of adult households in the United States did not have an emergency savings account. The pandemic applied even more pressure to struggling Americans, exacerbating that anxiety. The fear of not having financial security can feel overwhelming, but you can take this moment to embrace the nation’s ethos of “land of the free and home of the brave” and apply it to your money management plan. Read on for five steps to follow to reach your personal money goals and achieve financial independence.
1. Expect the Unexpected with an Emergency Fund
It’s always been a smart idea to set aside some money in a savings account for the unexpected. The COVID-19 pandemic, and the economic and employment downturn it spurred, turned that theoretical possibility into a reality for many Americans. Having emergency cash in the bank can give you back the financial freedom that comes from having peace of mind. In the event of a global issue, the loss of your employment, or even an unexpected car repair or medical bill, an emergency fund is there to help. Though we’re all hopeful to soon put the pandemic and its effects fully behind us, one of the lasting lessons we can take away is that an emergency fund is a critical financial strategy.
Exactly how much you should set aside is a personal equation based on what you can afford today and your cost of living, but a good rule of thumb is to put away three to six months of expenses. You can sock it away in any savings account, but an FDIC- (or NCUA-) insured account at your bank or credit union is ideal. Set a monthly goal for how much you can contribute to savings and look for ways to automate the process.
Looking for a way to level up your emergency fund? Once you build it up to a certain amount, you may want to consider having your money work for you. If you exceed your emergency fund goals, keep saving and set aside some to invest in a low-risk fund to maximize yield.
Deciding to save into an emergency fund is a great way to regain control over your financial wellness and boost your overall well-being. Financial freedom can give you peace of mind that’s truly priceless.
2. Curb Spending and Increase Calm
Feeling financially free isn’t about being able to spend whatever you want today. It’s about knowing that you’ve saved enough that you don’t have to worry in the future. Setting a budget does force you to curb spending in the short term but setting up those fiscal guardrails is one of the surest paths to financial independence.
Having a realistic budget gives you a deep sense of calm and reassurance. Once you know how much money is coming in and how much you can spend, you have a holistic picture of where your money is going. Think of a budget as a road map. You wouldn’t set out on a cross-country trip without any idea of which road to follow. Living without a budget is like driving blind. Setting targets, defining priorities, and giving every dollar a job can help you get to where you need to go by putting you in the driver’s seat. What better way is there to achieve financial freedom?
3. Make a Debt-Free Declaration
Being debt-free is one of the best markers of financial freedom. Getting out of debt and staying out permanently can help you save the money you need to have a stable future.
However, not all debt is created equal. There’s a difference between good debt and bad debt—the former can help you complete your education or buy a dream home, while the latter can bog you down with high-interest rates and unnecessary monthly payments. A 2020 Experian report showed that the average American owes approximately $92,727 in total debt—the highest amount ever recorded. If you’re in debt, you’re not alone. There are several strategies and steps that can help, but whichever path you take, make sure it’s both attainable and sustainable.
Before you buy something that will come with a high-payment plan, ask yourself if you a) need it and b) can actually afford it. Using an auto loan calculator or mortgage calculator can help you determine what fits into your budget.
4. Retirement Plan to Brighten Your Future
What is the ultimate financial freedom goal? For many people, it’s being able to have a secure, comfortable retirement in your later years. Here are a few simple things you can do today to help prepare for a great tomorrow:
- Maximize contributions to any tax-advantaged retirement savings accounts, like an IRA or a 401(k) plan
- Take advantage of any employer matching contributions so you can receive the full amount offered
- Diversify your investment portfolio with a mix of asset classes
It can be difficult to make short-term sacrifices in the name of a more comfortable future but keep your eye on the ball and remember you’re giving yourself the gift of financial independence.
5. Pay it Forward and Let Freedom Ring
If you’ve already accomplished all the items on this list and feel secure in your financial freedom, consider celebrating this July 4th holiday by helping others. Determine how much you can set aside for charitable giving and help support the missions and people who are important to you.
If you have younger loved ones, you can help set up or fund their 529 college savings account. It’s a great way to promote financial independence for the next generation, and maybe even help yourself along the way—some states let you claim a tax deduction for that kind of donation.
If you don’t have relatives that need help, consider donating to a child-focused charity, particularly one with a focus on education. Investing in the next era of earners can help us all enjoy more financial freedom in the years ahead.
Financial Independence on July 4th and Beyond
Freedom means many things for many different people, but on the fourth day of the seventh month of the year, we all come together to celebrate how lucky we are to be able to have the opportunities associated with independence. Financial security can help you feel more confident, in control, at peace, and, of course, free to live the life of your dreams.
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