Achieving financial independence may seem daunting, whether you’ve just started “adulting” or have been living on your own for several years. Getting to a point where you are making ends meet without monetary assistance requires a clear understanding of your finances and a plan.
Living within your means is important to your financial wellness. In this blog, we’ll explore what it takes to be financially independent.
Be Financially Free
Being financially free means that what you earn in income covers all of your expenditures on a daily, monthly or annual basis. It means you don’t rely on another person to provide you with money to help pay your rent, household bills or transportation. You’re totally self-sufficient. For some, the definition of financial freedom may also mean that you’re free of all debt.
How to Achieve Financial Freedom
Because each person’s situation is unique, there is no one formula to achieve financial freedom. What it does take is a commitment to learn more about financial education, the dedication to set a budget and the willingness to stick to it.
Here are some tips to get started on your path to financial freedom.
Grow Your Knowledge
Financial literacy is an important cornerstone toward achieving financial independence. When you understand and know how to budget, you take more control over your money and your future. By understanding the basics, you can move on to specific areas of personal finances that may interest you, such as debt management or investments.
A good way to start is to look at your current credit union or bank to see what financial education programs and information might be available. At Travis Credit Union, we offer a dedicated Financial Wellness Hub on our website that teaches you to plan, save, spend and borrow better. We also offer on-demand financial webinars, financial blogs (such as this one) and other material to keep you informed.
All of this information provides a useful base that promotes financial self-awareness as you move along your path toward financial independence.
Create a Budget
Finding out how much income you have and how much you spend is easier than you think. Start by writing down all of your monthly income in one column on a sheet of paper or on a spreadsheet program. In the next column, list all of your monthly expenses, including rent or mortgage, utility bills, car and credit card payments, transportation, food, etc.
If you have leftover income after subtracting all of your expenses, you’re in good shape. If you find that you spend more than you earn each month, you’ll have to identify areas to save to stay within your budget. Look at any discretionary spending first, which is spending that isn’t necessary and are just things you want. These include visits the coffee shop, dining out, shopping and attending concerts and other events.
Use this information to create a monthly budget then stick to it. Ensure your budget includes room for saving money and paying down debt which are other keys to achieving financial independence.
Start Intentionally Saving
Having money set aside for savings goals, for emergencies and for your future retirement are key to financial self-sufficiency. You can start small, with automatic deposits to a dedicated savings account each payday and watch your money grow over time. We call it saving intentionally because when you have a purpose for the dollars, they tend to make it into your savings account.
There are many varieties of savings options but two of the most important are: An emergency fund, which acts as a safety net against unexpected expenses, and Retirement Accounts.
For emergency funds, $1,000, as recommended by Dave Ramsey, an American radio talk show host who gives financial advice is a good target to aim for. Those funds should be held in an account that is separate from your day-to-day savings.
Check with your employer about any type of retirement plan they offer such as an Individual Retirement Account (IRA) or a 401(k). Ensure you participate in the plan, especially if your employer offers a matching amount to your contributions. An employer match is effectively free money. Up to the match amount, often 3%, you are making 100% returns on your investment before any stock market gains or interest!
Lower Debt, Build Credit
Paying down your debt can free up more of your income, which you can then put into your savings. The key to paying down your debt is to pay more than the minimum payment required. This will let you pay off your balance sooner and save on interest.
Another strategy is to consolidate various debt into a single loan, which can help you save on monthly payments and makes things easier to manage. TCU has personal loans that you can use for debt consolidation. If you are a homeowner with existing equity in your home, you have even more options.
Lowering your debt can also improve your credit score. This means you will get lower interest rates if and when you need to borrow money. You should monitor your credit report regularly to be sure it is accurate. You can get a free credit report from each of the three U.S. credit bureaus once a year at annualcreditreport.com.
Travis Can Help
Travis Credit Union can help you on your journey to becoming financially self-sufficient. From information on financial wellness and on-demand webinars to products and services that grow your wealth and save you money, trust Travis for all your personal banking needs.
Get started at traviscu.org or visit us at one of our Northern California branches. Avoid the wait and schedule your branch appointment today.