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A Guide to Financial Independence

A Guide to Financial Independence
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Transitioning from being a carefree college student to a financially responsible person can be a huge shock for young adults. As many young professionals can attest, entry-level positions often come with meager salaries — but even with a small paycheck, saving is still possible.

If you find yourself in need of help when it comes to financial independence, try a few of these tips to implement a smarter savings plan.

1. Write Down Expenses

If you’re a budget newbie like I was, start by writing down all of your expenses and analyzing your spending. Little things like a $4 coffee may not seem like a big deal, but if you do that every single day, you’re spending over $100 a month on coffee. Managing my budget became a lot easier once I saw where I was wasting money. Cutting out the daily lattes and opting instead for a cup brewed at home helped me save around $100 a month. If you struggle to follow a budget, try an app like Mint to help you stay on top of your spending.

2. Apply the 50/20/30 Rule

Now that you know where you’re actually spending your money, figure out where you should be spending your money. I began by implementing the 50/20/30 rule that many budget experts recommend. You’ve probably heard of it, but this rule puts your budget into three simple categories.

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50 Percent: Absolute Necessities

This includes all necessities, such as rent, food, and utility bills like water and electric.

20 Percent: Financial Obligations

I put 20 percent of my salary into my savings account, a 401(k), and toward paying off my student loans. To help stay within this percentage, I negotiated an income-based repayment plan for my student loans, which drastically lowered my monthly payments to a more affordable range.

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30 Percent: Personal Purchases

Everything extra goes into the personal purchases part of my budget. My cellphone and Internet bills are included within this 30 percent. If you are having trouble staying under the 30 percent mark because of increases in your bills, consider going with a cheaper plan. Many people don’t realize that they are actually overpaying for Internet and not even utilizing the high speeds they pay for.

3. Follow the Rent Rule

Housing makes up a significant portion of most budgets. Many financial experts recommend spending no more than 30 percent of your gross income on your rent or mortgage per month (though that percent seems to be increasing as housing prices continue to increase). Like many young adults, I quickly realized that buying a house straight out of school was not in the cards for me. Though I dreamed of living in my own little home, I followed the “rent rule” and allotted 30 percent of my budget toward rent. Staying within that price range kept me from looking at apartments I couldn’t afford.

4. Consider a Roommate

I wanted my own place when I got out of school. I had spent my entire life living with other people, so why couldn’t I get a place of my own now that I had a reliable paycheck? After looking carefully at my finances, I decided to get a roommate instead — just for a bit. This cut my rent cost significantly, allowing me to save even more money every month to put toward a place of my own. While having a roommate may not be ideal, it is becoming more common for young adults fresh out of college. A few years with a roommate, especially if you’re living in a pricey downtown neighborhood, could allow you to save thousands of dollars that can be put toward the down payment on your first house.

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5. Cut Down on Dining Out

Food is a necessity, but going out to eat can get expensive fast. I would often rationalize eating out by thinking that I could get a cup of soup and a side salad cheaply at a restaurant, which is probably just a bit more than what I would spend on a meal at the grocery store anyway — plus it was so much more convenient! But add a drink and an appetizer, and my bill would always end up being more than what I intended on spending.

I quickly realized that those frequent restaurant meals had to stop if I was going to begin saving effectively. Now, I allow myself one good meal out each week and eat the rest of my meals at home. I also make it a rule to always bring my lunch to work; the only day I go out for lunch is Friday and I give myself a $10 limit. If you find this difficult, set aside an hour every week and plan out your weekly menu or use a meal planning app. Make a grocery list of everything you will need for the week: following a list prevents you from spending extra money on impulse shopping when you get to the grocery store.

6. Make Do with What You Have

After getting out of school, I felt like I had earned the right to buy the newest of everything. I worked hard — didn’t I deserve to treat myself? Unfortunately, spending on big-ticket items like a new car can stop you from saving money and push you further into debt. Although it wasn’t what I really wanted to do, I decided to stick with my old car instead of buying a brand-new vehicle.

Before you make expensive purchases (like that next-generation iPhone when your old one works just fine), ask yourself, “Can I do without this?” It’s tough to go without the things you really want, but saving your money now means you’ll be able to make more important purchases down the road.

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7. Look for Free Events

One of the hardest parts about budgeting is feeling like you don’t have any money left over after paying your rent and utilities, buying groceries, and setting aside some savings. Don’t forget to dedicate some time and resources to having fun and cultivating your hobbies. It’s important to have fun, but your slush fund doesn’t need to be big to be effective. Instead of expensive concerts or sporting events, find out what free events are available in your area. By seeking out these free events, I could make plans with my friends that didn’t involve spending a lot of money.

Although saving can feel impossible, you can get started with a few simple changes to your lifestyle. Take the time to set a budget and analyze your spending habits, and like me, you will find that adjusting to a savings plan is completely manageable, even on an entry-level salary.

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Last Updated on July 20, 2021

Financial Freedom is Not a Fantasy: 9 Secrets to Get You There

Financial Freedom is Not a Fantasy: 9 Secrets to Get You There
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Have you ever considered your life now, and how it would be if you had more time to spend with your family and less worries about money?

Nowadays, financial stress is one of the most troublesome weights in life. If you’ve ever encountered financial stress, you know the difficulty of not having enough income to pay your obligations or bills.

Many people say that money is not the ultimate goal of life. While that’s true, money certainly plays a very significant role. The meaning of financial freedom changes with the different phases of our life, but ultimately, it is something that many people strive for.

In this article, we’ll explain how to capture that financial freedom you’ve been looking for. Read on to learn the secrets to financial freedom.

Break Free of Your Finances

Financial freedom is about having a constant flow of cash from your assets to cover all your regular needs.

When you are not worried about your income, or living paycheck to paycheck, you gain a great sense of freedom. It’s the freedom to be obtain and do what you truly need to make your way through everyday life.

Gaining financial freedom, though, is a process of growth, making small improvements and gaining emotional strength.

Though it seems hard to believe, it is really very simple to get financial freedom.

To do so, you simply need to make sure that your assets exceed your liabilities. In other words, you’ll need to find the sweet-spot where your residuals meet or surpass your expenses. This is something that you can achieve with the proper plan.

While not every person will accomplish financial freedom, the potential for anyone to do so is certainly there. Anyone can achieve this success, regardless of their income level.

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Outlined below are 9 secrets that will help you in your goals of achieving financial freedom.

1. Stop Unnecessary Spending

We often spend money inwardly, instead of objectively.

For example, you may spend when you’re anxious, depressed, restless, exhausted, from fear of missing out, or to please others. This is a very unhealthy way to handle your finances.

To stop this habitual spending, log down all your spending over the course of a month.

Just as some people keep a food diary, keep an expense diary. Remember not to just write down how much and what you spent the money on, also include the circumstances of why you spent the money. Was it an impulse buy at the checkout line or was it something you planned to purchase?

This increased self-awareness could enable you to avoid triggering situations in the future when you are considering an impulse buy.

2. Plan a Monthly Budget

This is a great opportunity to get serious.

Take a seat with your spouse or partner and make a monthly budget based on your income, not your expenses. You are never again going to spend more cash then you have on hand.

Overspending is the thing that led you to more financial obligations. Make sure you decide every month what is coming in and what will be going out and stick to that budget… no matter what.

3. Cut-up Credit Cards

Perhaps you are the type of person who always pays your credit card balance in full before the end of your billing cycle, and enjoys the reward points you gain. If this is the case, then you’re already way ahead of the game.

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If not, you may want to consider ridding your life of the burden that credit cards bring.

Many cards have strategies set up so that if you make a certain number of late payments, they will raise your interest rate much higher. This can really add up in the long run and you won’t be doing your financial situation any favors. If you’re prone to late payments or have a large balance due on your cards, cut them up!

Without proper self control on credit card spending and payments, you are basically throwing your money away. To ensure that you have better control over your spending, use only cash or debit for all future purchases (and don’t forget to pay at least your minimum payment on your cut-up cards each month!).

4. Increase Savings

There is no doubt that for a comfortable retirement you must accumulate satisfactory savings throughout your working life.

It’s good practice to save up to 15% of your income.

Start with your workplace 401(k), if you have one. If not, a Roth IRA (if you are eligible) or a traditional IRA (if you are not eligible for the Roth) are the next logical steps.

Increase in longevity means you might be able to look forward to 25 to 30 years in retirement, or possibly even significantly more. Investing now in good retirement plans will ensure that you have a guaranteed a stable monthly income when the time comes to stop working. [1]

5. Invest Wisely

Consider investing in funds.

Specifically, you will gain higher returns if you invest in different types of mutual funds such as Debt funds, Equity funds and Hybrid funds with a proper balance, although it absolutely relies on your personal preferences and sense of risk taking.

To get the most of these benefits, make sure you are investing in a variety of assets. Another resource of investing in mutual funds is SIP (Systematic Investment Plan) where you invest some money every month in funds. SIP works by averaging the per unit price of the stock.

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Mutual fund investors are aware of the benefits of an SIP (Systematic Investment Plan). For one, it is the most secure way to invest in equity mutual plans so that wealth is created over a long period of time. This plan also helps you to gain a better sense of financial discipline, which will come in handy in all your financial endeavors.

6. Invest in Gold

There isn’t really a better way to invest in gold than to have the physical gold itself in your possession.

You can purchase gold coins and bars from mints as well as from coin dealers and other private sellers.

Another way to invest in gold is through ETFs (Exchange Traded Funds).

These are is similar to mutual funds but they are exclusively investments of gold. ETFs are great because they offer more liquidity; the ETF owns the actual physical gold, stores it, and retains the value of the shares. These shares can then be bought and sold in the stock market, and one big benefit is that the transaction costs of gold ETFs are much lower than the that of physical gold.

With its consistently-increasing demand, investment in gold can be very wise long-term investment to make.

7. Stash Emergency Funds

Whether it’s a cash gift or a work bonus, always try to save any extra money that comes your way rather than making unneeded purchases.

If you get paid every other week, you’ll get an “extra” paycheck (three rather than the usual two) twice a year. Either save those paychecks towards your emergency funds or utilize the money to pay down other obligations, such as loans, credit cards or other debts.

Make it hard to get your cash.

Put your savings in an alternate bank, maybe an online bank that forces you to delay for several business days before transferred money hits your regular bank account.

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8. Find Fabulous Mentors

Find a mentor, such as a friend or family member, who has exceptional control over their finances and pay attention to everything they do.

If you do not have any friends or family that are enjoying financial freedom, then find a mentor online! There are numerous blogs and guru websites featuring the advice of many people who have reached financial freedom, and they exist primarily to let you in on how to achieve it for yourself.

There are also plentiful forums available that share tips and tricks on how to best achieve financial freedom. Read as much as you can and start changing your habits for the better.

9. Be Extra Patient

Patience is the key of financial success.

Being patient can be quite tough, especially when you’re struggling with your finances, but having faith is worth it. You’ll continuously be on the right track if you are taking the proper steps above.

So don’t be discouraged, even if you are only saving a few dollars a month; it all adds up. Within just a few years you’ll look back proudly at your accomplishments and be glad that you had the patience to get there.

Financial Freedom for All

Anyone can achieve financial freedom, regardless of their financial circumstance.

Use the tips provided above to get yourself on the track to financial freedom and toss your monetary concerns out the window. If you wish to achieve a life with financial freedom for yourself and your family then you must adopt a disciplined approach towards your finances.

Following the simple secrets above is a great start to making your money work for you, so you can work less and live more!

Featured photo credit: rawpixel via unsplash.com

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Reference

[1] Hartford Gold Group: IRA Retirement Accounts

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