Financial independence is a state in which you no longer must work to produce an income but can instead choose what you’d like to do. For many, it only comes with traditional retirement, but it’s also possible to achieve it before that point. The key is to free yourself from financial obligations and find a way to get money coming in. From there, you can work as much or as little as you choose, run your own business, volunteer, seek further education, travel, spend more time with family and friends, or do anything that you choose. You can’t achieve it overnight, but you can start taking steps today toward the goal.
Pay Off Your Debt
If you owe money to someone else, you can never consider yourself financially independent. On top of that, when you are in debt, the interest is essentially wasted money that you could be putting toward investments. You need to identify strategies that will help you get out of debt more quickly. Taking advantage of student loan refinancing with NaviRefi is one way to deal with money you borrowed for your education and lower your monthly expenses.
For credit card debt, you may want to find out if you can roll your balances onto a card with a lower interest rate. While you usually need to prioritize these kinds of debts over your mortgage, if you are a homeowner, you should also try to pay off your house once you have these out of the way. There are some tax advantages to maintaining a mortgage, but eventually, it’s important to fully own your residence as well.
Save for Emergencies
Few things can knock a careful plan off track like unexpected expenses, and while you may not be able to predict exactly what they will be or when they will happen, you can be sure that they will come along. They might be a necessary car or home repair, an out-of-pocket medical expense or something similar, and they can derail your budget instantly. In worst case scenarios, they can put you on a downward financial spiral if you end up borrowing money to cover them and struggling to repay it. Fortunately, emergency funding can help you weather everything from job loss to a broken tooth, a sick pet, and more.
How much you need to have in this fund will vary depending on your needs and circumstances, but it should be at least enough to cover three to six months of basic expenses. You may want to err on the higher end if you’re supporting a family or are self-employed. You also need to have this in a place where you can access it quickly, so a high yield savings account might be a good choice. Shop around and see what products are available at your bank or other financial institutions. You probably won’t be able to put all this money away at once, but you can start with just a few hundred dollars.
Identify Your Goals
Not everyone will have the same goals when it comes to financial independence. For some, owning a home will be important while for others, this will be exactly what they do not want. If you plan to keep working, you may not need to think as much about how to create various income streams. You may also need less money if you’re planning to move to an area with a lower cost of living than where you are currently. Maybe you want to put your children or grandchildren through college or help friends or family members in other ways. The more specific you can be about your goals, the better you can prepare.
Invest
Your first investment should be in your employer-sponsored retirement account. If your employer doesn’t offer one, you can set up your own. There are tax advantages to these types of accounts and starting them young gives the money a substantial amount of time to increase in value. However, even if you are older, it’s worthwhile investing in these. Your next step once you are maxing out your contributions to these accounts should be to look to other investment opportunities. This might include real estate or simply creating an online brokerage account and starting to invest in mutual funds and other vehicles.
Leave a Reply