Financial independence may mean different things to different people, but the concept is generally the same - free yourself from money concerns. According to a Capital One survey1, 44% of U.S. adults define it as freedom from debt, 26% say it’s having enough money saved for emergencies and 10% say it’s retiring early. Whatever your definition is, we want to help you get there!
Here are some good money habits that could help make financial independence a reality for you:
Get out of debt
In order to move closer to financial freedom, you can’t have debt anchoring you down. It may be difficult for some people to get completely out of debt but you can make concentrated efforts to improve your situation over time. The key is to look at your debt as a whole and identify what areas need the most attention.
There are dozens of debt elimination tips out there and it all comes down to what works for your unique situation. If you prefer to knock out smaller debts one-by-one before chipping away at larger debts, you can use that approach. If you would rather spend an equal amount on all debts each month and wear them all down over time, that technique may work as well. Whatever tactic you choose, follow through with confidence and determination.
As you make progress, keep in mind that paying down your debt is only half the equation. The temptation to take on new debt can be very enticing vexing and saying “No” may not get any easier. When your will is tested, remind yourself how great it feels to see your balances shrinking.
Spend less than you earn
This tip may sound simple but it’s usually easier said than done. Spending less money than you earn takes discipline and a full understanding of what you make and spend each month. If you need help managing your income and expenditures, a monthly budget could be the answer.
The first step is to find a budgeting style that works for you. People have different incomes and spending habits so it’s important to understand your options and choose the best style for you. Once you’ve chosen a budgeting style, staying true to your new spending behavior may prove difficult at times. Use these 5 tips to sticking to a budget to keep your spending in check and your goals on target.
Save money regardless of income
There are many ways to save money, even if you have a lower income. A reverse budget, for example, requires you to deposit money into your savings and retirement before paying your personal monthly expenses. By satisfying these accounts first, you can pay your monthly bills with the peace of mind that your savings obligations have been met.
Automatically depositing money from your paycheck into your savings accounts is another simple way to satisfy your savings. You can choose a percentage of your check to go straight into your savings and organize the transaction with your payroll provider and bank. Once initiated, you should start to see your savings increase over time.
Diversify your investments
Have you ever heard the phrase, “don’t put all your eggs in one basket?” This life lesson applies to investing money as well. Many financial advisors recommend a diversified portfolio of investments2 to lessen the impact of a poor performing sector. By investing in several different opportunities, your overall financial strategy could be less affected by one underperforming investment. You can’t predict unexpected turns in the market, but there may be ways to make them less impactful.
Here are some of the most common asset classes used for investment diversification3:
- Equities (stocks)
- Fixed-income (bonds)
- Cash equivalents (money market instruments)
- Commodities (grains, gold, oil)
- Real estate
Please contact your financial advisor directly for more information on making investments and how to best diversify your portfolio.
Keep an emergency fund
Life is full of surprises. If you happen to experience a sudden loss of income or a major unexpected expense, having to straighten out your finances could add more stress to the situation. Imagine how much easier it would be to cover these costs hassle-free.
Emergency funds are separate from your traditional savings accounts and the idea is to only use them when absolutely necessary. The purpose of this account is to keep your savings and retirement funds untouched so you can try to build up a comfortable amount. For more information, please read our blog on how to build an emergency fund.
Commit to your goals
Like many commitments in life, achieving financial independence may not be easy but it can be accomplished. You can use this advice as a guide, and if you stumble or get sidetracked, refocus and recommit to your goals. Good luck on your journey to financial independence!
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of OneMain. The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial, legal or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else. The author was compensated by OneMain for this post.