Follow these 5 tips for financial freedom...
“Independence” is a powerful word. It implies freedom, liberation, and self-sufficiency, but everyone thinks of something a little bit different when they hear it. Maybe you imagine the epic battles US colonies fought for independence from British rule – or maybe you just think of small, everyday things you do to be independent, like driving yourself to work, or managing your own finances.
This Fourth of July, CARD is exploring what “independence” means to us, especially in the context of smart money and financial freedom. Here are some tips and tricks for taking control of your money and becoming more financially independent this summer.
1. Define Financial Independence
For us at CARD, Independence Day means celebrating freedom from oppression and paying respect to all of the men and women who fought in the Revolutionary War to better the lives of their families and communities. It also means acknowledging the shortcomings of The 4th’s civil rights victory and remembering the women and people of color who still had decades left in their fights for independence.
There’s lots of different ways to celebrate the 4th of July, and there’s lots of ways to define financial independence. For some people, financial
independence means having just enough money to be comfortable and cover the occasional emergency. For others it might mean having an extensive safety net, diversified investments, and a detailed savings plan.
First, think about what it means in the context of your own life and come up with your own definition. No matter what it entails, you can reach financial independence with commitment, a little bit of sacrifice and some advance planning.
2. Accept That “Knowing Is Half the Battle” ~ G.I. Joe
Be honest with yourself and take stock of your financial situation. As GI Joe famously said in his PSAs, “Knowing is half the battle,” and achieving financial independence requires 100% transparency between yourself and your money.
The default can be to turn a blind eye to the details because, let’s be real, financial issues like debt and late payments can be stressful, and more complex processes like taxes and mortgages can be confusing. But carefully reading your statements and coming up with a plan for your paychecks can actually be a good way to reduce financial stress.
Organize all of your documents (from tax refunds to bill stubs), identify each of your income streams, and check on all your accounts regularly. Make a spreadsheet, handwrite a list, draw a word-cloud – do whatever you need to do to get a clear picture of how your money lives and grows.
3. Set Goals and Start Small
Achieving financial independence may seem like one big, overarching goal, but it’s actually made up of many smaller stepping stones.
Are you starting from scratch and trying to stop living paycheck to paycheck? Do you have some healthy habits that you’re trying to build on? Meet yourself where you’re at, and draft a set of attainable goals.
If you’re new to the process, don’t feel like you have to start with lofty goals like putting half your paycheck into savings every month, or cutting your spending 30%. Start small by saving, say, $40 per check, or skipping that expensive latte a few times per week. Create a basic budget that’s easy to follow in order to cut back on unnecessary expenses.
Move up from there as you become more comfortable, and once you confidently get across some small stepping stones, you’ll be taking big leaps in no time.
4. Keep Moving Forward
More technical definitions of financial independence stress that you need to commit to always live below your means – but with some initiative you can make sure your means are always increasing.
Everyone has their personal and financial roadblocks, but in general you can proactively create opportunities for yourself. Master that new skill, join that affiliate group, take the test for the new certification – it’s all about staying sharp and increasing your value to potential employers or clients.
5. Maintain a Reliable Safety Net
From medical bills to car repairs, the unfortunate reality is that according to polling, only 39% of Americans can afford to cover a $1,000 emergency out of pocket. However, COVID-19 has made it crystal clear how important it is to have a safety net (savings, insurance, security) that could catch you or your loved ones in the event of a crisis.
To avoid depleting your automated savings or dipping into retirement accounts, try to put money aside each month to create an emergency fund. Ideally you should have several months expenses to use as a cash cushion for when your roof starts to leak or you need new tires. That way you can keep your long-term financial goals intact while taking care of short term issues.
A good way to build up your safety net is to research and invest in insurance policies that protect you if something causes you to lose primary income. Life insurance can protect your family in the event of unexpected death, and long-term disability insurance can help with injuries or chronic conditions.
In the spirit of American Independence Day, focus on how financial independence can improve your life and help you protect the people you care about. It’s not about hoarding money or disconnecting from the world around you – it’s a life-long exercise in patience, self-acceptance, and commitment.
Dig into the details, write up your goals, create your budget, and always push yourself to make fiscally responsible decisions. Follow these steps, do your research, stay on top of your money and financial independence can be reality in your life.