Are you looking to become financially independent? True financial independence calls for a combination of hard work, discipline, and a few simple steps which I will outline here.
- Do not live beyond your means. Have a budget and don’t incur bad debt. I’m sure you have heard this many times but, do not keep large balances on your credit cards. By paying high interest on your credit cards, the only ones becoming financially independent are the credit card companies. Of course there will be times when you may not have a choice due to emergency situations. What I’m referring the added expenses of luxury items and entertainment items that you know you can’t pay off by the end of the month. In my opinion, the only good debt would be the mortgage on your house and/or a student loan. Both of these will add to the financial stability of your future and help you create greater wealth. If you currently have debt, start by paying off your debt with the highest interest rate first, then work your way down from there.
- Establish budget categories. These categories should include your checking account for typical expenses such as rent, insurance, food, utilities, gas, and other necessities for everyday living. Start a savings account with emergency funds to cover three to six months of expenses. This may vary based on the economy and the job you have. If you have a job that is in high demand, three months worth of savings to cover expenses might be enough. If you have a job that is in lower demand, you might need more savings due to the longer time on average it might take to find a new job. The emergency fund will become useful as well if you should ever become temporally disabled or sick. Next you need to have a financial independence bucket. Every paycheck you should save a percentage that you know you can consistently commit to. First pay yourself before anything else. You have to do this habitually. Finally, we can’t have all work and no play. Establish an entertainment account and use these funds for going out, vacations or hobbies in which you might participate.
- Don’t be afraid to work with a qualified investment advisor.
An advisor will help you create a plan and budget to guide you to make the right decisions for the best investments in each of those categories. They will also work with you as your team member to make sure you stick to the plan going forward. Everyone has different goals and objectives, so a qualified investment advisor can tailor your plan for your specific needs. For many this can be difficult to accomplish their own. If you know you are not disciplined when it comes to saving and budgeting, it might be a good idea to hire a professional to assist you.