Don’t Take a Vacation from Your Finances – Strive for Financial Independence!
Make this summer the time you tighten up your own personal economy and sharpen your long-term money plans. Here are some essential steps to achieve financial independence:
1. Pay yourself first. This personal finance adage is one of the wisest, but Americans tend to make it a priority only in challenging times. Set aside a portion of every paycheck, preferably automatically, for long-term savings before you pay bills or spend any of it. Start small and add 1% every six months as you adjust to having less spending money. Build up to saving 15% of all income for retirement.
2. Keep an emergency fund. Save a minimum of three to six months’ expenses in a separate interest-earning account. The fund will help cover expenses in the event of a job loss, car accident or medical bills. Some financial advisers even advocate building up to a year’s worth of expenses and it is a noble goal, but don’t give up if it seems attainable. Start to save at least one months’ worth of expenses and continue to add to it each month. When you work to provide yourself with a safety net like this, you can be financially independent. Your decisions are not based on money and you aren’t backed into a corner where a credit card is your best option in case of an emergency.
3. Be smart about credit cards. Before you can pay off your debt, you have to stop adding to it. Get in the habit of using credit cards only when you must, and don’t buy non-necessities like TVs or iPods until you can pay cash. Don’t get sucked in by sales. Pay off your card balance monthly. Don’t fall victim to the minimum payment trap, which could keep you on the hook for years and pile thousands of dollars of interest onto what you owe.
4. Live within your means. Setting up a budget and sticking to it is one way to help ensure you stay frugal. To really achieve your long-term goals, you may also need to take major cost-cutting actions such as skipping vacation travel for a year, getting rid of a car, moving to a less expensive home or taking the kids out of private school.