6 Tips toward financial independence
Learn strategies for taking command of personal finances and long-term financial goals.
What does it mean to be financially independent? Chad J. Larsen, PRP, AIF®, president of Moreton Retirement Partners in Denver, Colorado, defines it as "being able to meet your core financial needs and also plan for the future."
If debt and day-to-day spending have taken control of your finances, following these tips could start tipping the scale back in your favor.
One: Set goals.
Define specific goals and determine a deadline for when you'd like to achieve them. A well-defined goal gives you a clearer direction and helps guide your decisions.
Two: Make a budget.
Set a budget with your goals in mind, and make saving a top priority. "There are two types of people: those who spend first and save what's left, and those who save first and spend what's left," says Douglas R. Peete, ChFC®, owner and financial representative at Douglas R. Peete & Associates in Overland Park, Kansas. "The second group is always more successful financially."
Three: Know what you're spending.
Track your spending and beware of added fees and charges. Using a credit card can rack up expenses quickly, especially when you factor in interest. Try using cash instead. "A lot of times people's spending habits change when they start using cash because they realize what's going out and how hard they had to work for that money," Larsen says.
Four: Practice discipline.
Once you have your goals and budget set, stick to them. "Financial independence has much more to do with self-discipline than how much money you make," Larsen says. Allocate your money where it's needed—not wanted.
Five: Save and invest wisely.
A combination of savings and investments can help create a healthier financial picture. Choose investments you believe will increase your net worth, and take advantage of pretax saving, such as an employer-sponsored retirement plan. Most important, Peete says, consider all the factors before making a decision, and consult with a financial professional you trust.
Six: Reassess your situation.
Life changes, such as the birth of a child, or financial accomplishments, such as paying off a loan, can call for readjusting your strategy. For example, after paying off debt you may find extra money in your budget. Use that money wisely by applying it toward long-term financial goals.
Ask for help.
Get the help you need to become more financially independent. Contact a financial professional to review your options.