Some people are low maintenance and focus on saving compared to those that splurge before they can build stable income streams. Alternatively, you might be able to maintain your lifestyle by making certain tweaks to your current habits with effective financial planning.
According to the latest Census Bureau data, 24% of young adults aged 22 or less were financially independent in 2018, compared to 32% in 1980. It is primarily because most Americans (64%) believe that the age of financial independence must be 22, but that is not the reality of most young adults.
The focus on financial independence from a young age teaches a lot about financial planning and spending wisely. The earlier you start being responsible with money, the more financially independent you will be.
However, becoming financially stable by a certain age is not necessary. It might take time, as it is not an overnight process. Let us see how you can achieve that over time.
Set Your Life Goals
Financial freedom might not mean the same to everyone. Some may consider it as the road to success, while others aim for it to support others. If you aim to become a philanthropist, look for a cause to support and find a list of charities to give to who are contributing towards your community and country. It is a good way of giving back and makes you feel good.
Setting your goal lets you decide how much you need to earn and within what time limit. Note down three basic objectives for yourself:
- The lifestyle changes needed to achieve your goal
- The amount in your bank account to make that possible
- The deadline age to save that amount
Then, set your financial mileposts through regular intervals from your current age until your goal achievement age. Note down the deadlines for the amounts, and draw a goal sheet to keep you motivated and updated.
Set Your Budget
Drawing a budget lets you keep track of your income, spending, and savings. Your household budget must include the following:
- Clearing debts like credit card bills or loan repayments
- Utility bills and rent payment
- Paying installments (if any)
Your essential obligations like these must come first. Avoid running deep into debts and late repayments, as they may cost you in the end. Then you can budget your grocery needs, clothing, and other essential household items.
Ideally, set aside a certain amount for each element and stay within the budgeted window. Your aim must be to save more than you spend. Effective budgeting could help you do that.
If you want to splurge occasionally, only do it if your budget allows you to. You must not be spending more than you make. Avoid going into credit card debt in the first place. If your bills pile up, you might have to pay a higher interest rate that detracts you from your budget.
Build Automatic Savings
Automatic savings include enrolling in your employer’s retirement fund, provident fund, or matching contribution benefits. Set automatic withdrawal into an emergency fund for unexpected expenses.
However, make sure you pull out your emergency or retirement fund the day you receive your paycheck. That way, your account will remain safe. However, the recommended amount in the emergency fund relates to your circumstances.
Also, remember that retirement funds come with tax benefits that might make it difficult for you to access them before retirement. Therefore, do not depend solely on your retirement funds to build your emergency funds.
You can open a savings account and have a certain amount transferred to it automatically every month. You can schedule the transference from more than one account. For example, if you plan to save part of your rental income every month, you can schedule for automatic funds transfer to your savings account. You can do the same for income generated from other sources.
You can use your savings account in case of emergencies as well.
Making wise investment choices can take you from ground level to the sky. Start investing small if you cannot afford bigger ones or have no experience. Invest in treasury bills to be safe. They guarantee full repayment of the principal amount at maturity and pay periodic interest.
Investing in the stock market is also a great way to increase your income exponentially. However, it requires studying markets closely and following trends. The stock market can become unstable and change drastically. At the same time, it is a great way to make quick money.
Gradually, you can start investing in more stable and lucrative markets like real estate and gold. These carry a lot of value and are great for long-term investment plans. However, these markets can also experience drastic changes and depend on the respective country’s economic performance. Therefore, you must be able to identify good markets to invest in.
Investments save you from having to depend on your day job alone. If your job falls in jeopardy, you will have something to fall back on. Having a safety net to fulfill your family’s needs is also essential. Investing in different markets is a great way to do that.
Consult a Financial Advisor/Planner
Consulting a professional is beneficial in both ways: whether you are beginning your financial freedom journey or want someone to manage your money. A financial advisor can give you options according to your current financial status. Ensure you communicate your goals and financial objectives to receive sound advice.
Alternatively, a financial planner can help you manage your money wisely and responsibly. For example, a financial planner can manage your portfolio if you have a stake in multiple investment plans. Moreover, they can also help you in your estate planning.
Additionally, suppose you own multiple illiquid and fixed assets. In that case, your financial advisor will help you determine their value and to make the best use of those assets for optimal financial benefit.
Financial independence can solve many financial problems and help you achieve your life goals. Therefore, you cannot underestimate its importance. However, it would be best if you started planning your financial goals early and set goals you want to achieve by a certain age.
It is essential to set your budget and stick to it. Set aside a certain amount for savings. Establish an emergency or savings fund to fall back on during a hard time.
Additionally, start investing small and then slowly build your investment portfolio. It will help you create more than one income stream. You can hire a financial planner to manage your portfolio and get sound advice on building one according to your finances.