It is always the perfect time to finally set the goal to become financially independent. Whether you want to finally pay off that seemingly never-ending stream of debt, switch jobs, or break free from your parents’ financial assistance, the road to become financially independent is one of the most fulfilling goals you can set. Even though trying to become financially independent is undeniably satisfying, it definitely takes a lot of time, effort, and motivation to achieve. The following steps will help you to become financially independent.
1. Cut Expenses
If there is any way at all that you can minimize your expenses, you’ll be able to save your money much more efficiently. It’s very important to know exactly how much money you are earning and where you are spending it. A helpful tip is to make a budget which lists all of your sources of income on one side and all of your expenses on the other. Every month, review what you’re spending money on to see if there’s anything you can cut to add more money to your savings account each month.
2. Spend Less Money Than You Earn
Budgets are not effective if you don’t stick with it. For most Americans, spending within their means is a real problem. The average American household with a credit card carried over $15,000 in credit card debt. If you make it a personal goal to never spend more money than you have in your bank account, it will help you to never spend more than you have. It may even be helpful to take your credit cards out of your wallet and only hold cash, because this makes it impossible to overspend. You can’t spend money that you don’t have.
3. Create an Emergency Fund
Unexpected money emergencies always seem to happen at the most inopportune times. If you don’t have the money saved to pay for expenses such as the cost of living if you lose your job, medical bills, or car repairs, you’ll probably end up putting them on a credit card. Rather than allowing these financial emergencies to put a great dent into your finances, it is advised that you create an emergency fun to help tide you over. Most financial experts recommend that you save up at least six months of wages saved up in your emergency fund.
4. Pay Off Debt
In 2011, 69% of American households had some form of debt. Whether your debt is in the form of auto loans, a mortgage, student loans, or credit cards, it’s important to work hard every day to pay the balance off. At the very minimum, be sure that you make your required monthly payments (this way it won’t kill your credit score) but you should also do your best to pay extra on your balance every month to help it go away faster.
5. Save Aggressively
To become financially independent, you’ll need to set aside a lot of money to put into savings – as much money as possible. Try to always save at least 20% of your gross income. However, if you’re a little tight on cash and that isn’t possible right now, just do the best you can, but strive your hardest to put at least 10% into your savings each month. If you get a raise or somehow find a little extra room in your budget, use this to increase your contribution.
6. Initiate Automatic Deductions
Putting extra money into savings or toward paying off debt can be difficult. Especially when you want to become financially independent, it can be hard to resist the temptation of spending the money you’re saving up on something frivolous. You can always combat this problem by setting up automatic withdrawals from your checking account to your savings and loan accounts. When the money is taken out automatically, you don’t even have the option of making irresponsible spending decisions.
7. Invest Wisely
Always supplement your income by making sound investments. You’ll need to consult a trusted adviser in order to help you create an investment plan designed to fit your needs. While it’s important to have a savings account, you’ll also need to invest funds in bonds, stocks, and other financial assets.
Becoming financially independent always takes a great deal of hard work, no matter what you’re coming from. It often takes quite a while to become financially independent, so try not to become discouraged. If you ever find yourself wanting to spend a little of that money that you’ve saved up, take some time to realign your strategy and make yourself pick right back up to where you left off. You may be tempted to skip out on saving up for an emergency account by just wanting to become financially independent but it is very important that you are prepared in case of financial emergency or you may end up as a dependent again.