How to Become Financially Independent
Happy Independence Day! With the coming July 4thholiday weekend and release of the new Disney+ Hamilton movie celebrating the origins of America’s independence, I thought it might be useful this week to discuss financial independence, which is the ability to live off savings and investments without having to work.
What factors help people achieve financial independence while others who earn the same amount of money (or more) live “paycheck to paycheck”? Below are seven strategies to help you improve your financial fitness and achieve your dreams:
¨ Set Specific Goals – Put a date and a price on each financial goal such as “save $6,000 for home improvements in 2022.” Next, break goalsdown into smaller pieces, such as “save $2,000 a year for three years” and “save $167 per month.”
¨ Focus on Succeeding – Remember the old saying “when there’s a will, there’s a way.” It is as applicable to personal finance as other areas of life. It takes discipline and focus to postpone spending today for a goal that may be years away.
¨ Live Below Your Means – Consider the three sustainable ways to “find” money to save for your future goals: increase income, reduce expenses, or do a little of each. Living below your means is an intentional process of spending less than you earn and saving the amount that is left over.
¨ Automate Savings and Investments – Save automatically through an employer 401(k) or 403(b) plan, credit union, or mutual fund automatic investment plan (AIP) that deducts periodic deposits from a bank savings or checking account.
¨ Borrow Carefully – Keep debt low and pay the least amount of interest possible for borrowing money. Strategies to reduce credit costs include negotiating a lower interest rate from creditors, transferring outstanding balances to lower-rate credit cards, and adding the payments for repaid debts to remaining ones.
¨ Maximize Tax Breaks – Take advantage of tax deductions for contributions to tax-deferred employer retirement plans, tax-free municipal bonds, tax credits, and the long-term capital gains tax rate on investments held more than a year.
¨ Develop Financial Resilience – Increase your resiliency resources including adequate savings and insurance, low household debt, in-demand employment skills, a social support system, and personal traits such as optimism, organization, and good health.