This month marks a time to celebrate the incredible, hard-earned freedom we enjoy in our great country. Freedom helps individuals and communities thrive and experience unique opportunities while also empowering them to live intentional, meaningful lives. As we commemorate our independence, it is also an opportune time to works towards financial freedom. Being financially free means having enough savings, financial investments, and cash on hand to afford the kind of life we desire for ourselves and our families.
Benefits of Financial Freedom
- Less stress. Financial stress can have a tremendous impact on your day-to-day mental health. Constantly worrying about finances can affect your sleep, mood, health, and productivity.
- More contentment. As you eliminate financial stress in your life, you’ll find there’s more room to appreciate the day-to-day and experience positive emotions such as joy, happiness, and peace.
- Improved quality of life. Financial freedom can often allow for more enjoyable experiences and opportunities to engage in adventurous activities like traveling and participating in hobbies.
- Increased confidence. Having your finances in order can bring a sense of security, resiliency, and satisfaction to your life, which can ultimately increase your confidence.
- Better relationships. Money problems can greatly strain your relationships, especially with your partner or in your family unit.
- New and exciting opportunities. Financial independence allows you to chase after more opportunities and allows you to think more long-term, instead of focusing solely on your immediate survival.
- More free time. Stressing over your finances takes a lot of mental energy and time, eating away at your spare time to enjoy life.
The specific benefits that you might expect from reaching financial independence will largely depend on your specific definition of financial freedom.
What Does Financial Independence Mean to You?
Being financially independent is highly personal and customized to each individual and family. Consider these two popular schools of thought:
- There has been a large movement of people who have adopted a financial lifestyle called Financial Independence, Retire Early, also known as FIRE. This financial approach has inspired many people to achieve an incredibly high savings (and investing) rate so that they can solely live off of their investment income instead of any sort of paycheck.
Followers strive to accomplish this early (long before the typical retirement age of 65), with some ambitious folks strive for retirement at age 35! This movement is incredibly inspiring, but calls for a strict regime to follow to achieve success.
- Breaking the paycheck-to-paycheck cycle. Others may place the value of financial independence as not living paycheck to paycheck. Having a sense of financial security and having excess money left over is the ultimate goal of these followers.
Some other ways to achieve financial independence include:
- Being able to live on one income while one spouse stays home with children.
- Affording a family vacation once a year.
- Leaving a job for a better opportunity.
- Sending your children to the school of your (or their) choice.
- Not stressing over your grocery tab.
- Reducing your hours at work.
- Giving 10% of your income to a cause you care about.
- Having a financial buffer for emergencies.
5 Tips for Starting Your Journey to Financial Independence
Use our five tips on financial independence to kick-start your journey today!
- Spend time creating S.M.A.R.T. financial goals.
- Develop (and stick to) a realistic budget.
- Make your savings automatic.
- Lower your debt burden.
- Explore the power of investing.
The journey to financial freedom doesn’t happen overnight, and typically involves lots of discipline, focus, and perseverance. But equipped with the right tools and resources, you can gain control over your finances and your future.
1. Spend Time Creating S.M.A.R.T Financial Goals
Before you can achieve financial independence, you need to set smaller goals along the way. We recommend creating S.M.A.R.T. financial goals. S.M.A.R.T. is an acronym for:
- Specific. Creating your goals is not a time for ambiguity, ensure your goals provide clear expectations so you know exactly what needs to be accomplished.
- Measurable. Tracking your progress gives you clear data on whether or not you’re on the right path to achieving your goals. Concrete evidence can also help when you’re feeling discouraged if progress is slow.
- Achievable. While you may certainly feel a little stretched at times, because of the necessary time and sacrifices you’ll need to make, your goals need to be attainable.
- Relevant. Your goals need to be relevant to your overall goal of financial independence.
- Time-bound. Your goals need deadlines. Whether it be 2 weeks or 6 months, setting a deadline will help you stay on track and also let you know when it’s time to check in on your progress.
Creating (and accomplishing) S.M.A.R.T. financial goals can help you gain confidence and traction on your journey to financial independence. Remember to evaluate your goals at the end of each of their deadlines to see your progress and make changes, if necessary.
2. Develop (And Stick To) A Realistic Budget
Budgets create a detailed plan for your spending. As you go about your daily life, it can be hard to quantify exactly how much you’re spending. But when you track your spending, you can get a more accurate picture of where your money is going. You may find that you’re unhappy with how much money you’re spending in a particular category and it could inspire you to make changes, and ultimately save more money.
Budgets can also help you set limits so that you can prioritize your bigger financial goals. For example, if you control you’re the dining out portion of your spending, you’ll have more money to allocate towards bigger savings goals, such as buying a car.
Budgets are a great tool to track your spending, evaluate your priorities, and provide you with a framework for your financial plan. They can also allow you to be as specific and focused as you’d like.
Housing, clothing, food, transportation, and debt are often the biggest budget line items. Discovering ways to decrease these monthly expenses can have a tremendous impact on your budget and help you reach financial independence faster.
3. Make Your Savings Automatic
Some of the biggest hurdles we face when it comes to finances are discipline and self-control. It’s challenging to have money left over at the end of the month when there are so many worthwhile (and fun) things to spend money on. That’s why making savings automatic is key if you want to achieve financial freedom.
With each paycheck, make sure you’re paying yourself first. Before your bills and discretionary spending, ensure that you’re taking care of your future needs by saving part of your paycheck. Starting with a 10% savings rate is a great way to gain momentum.
With each paycheck, you can make sure you’re saving for things such as:
- Your emergency fund. Part of achieving financial independence is being properly prepared for unexpected financial emergencies. When you have a fully funded emergency fund, you can tackle emergencies with more ease.
- Retirement. It’s never too early to start saving for retirement. Consistently savings for retirement will help you tremendously when you reach your golden years. You can get started with an Individual Retirement Account (IRA) with Lafayette Federal Credit Union and start contributing to your future today.
- A down payment on a house. Homeownership is a common goal for many—but that doesn’t mean it’s an easy one. Saving up for a down payment, closing and moving costs, inspections, and renovations take time and discipline. Savings accounts, certificates of deposits, and money market accounts can help you earn interest while you save up for your dream home.
- Educational experiences. Saving for your or your child’s education is a huge financial undertaking—one that takes diligence and often, automatic savings. Using an educational account such as a 529 Plan or a Coverdell Education Savings account can help you reach your education savings goals.
- A new car. Whether your current car is on its last few miles or your family has outgrown your sedan, buying a new car is exciting (and expensive!). Saving up for a down payment or the whole price of the car can take time. When it’s time to buy, ensure you’re maximizing your savings by securing financing that works with your budget.
4. Lower Your Debt
Lowering and eliminating your debt payments can have a tremendous impact both financially and mentally. Debt eats away at your paycheck and can hinder you from saving as much as you’d like or enjoying fun experiences. It can also affect your mental health, causing worry and stress.
Reducing your debt obligations can allow you more opportunities and flexibility in your finances. For instance, when you eliminate credit card and auto loan payments, you’ll have more funds to fill your savings buckets, decreasing the time it takes to achieve your goals.
If you currently carry a lot of high-interest debt, consider consolidating to one monthly payment. This can help you potentially lower your interest rate and pay off your debt faster.
5. Enjoy the Power of Investing
Investing is a powerful way to create long-term wealth. Even if you start with a small amount, the power of compound interest can help you accumulate wealth. Today, it’s easy to invest in stocks, bonds, real estate, precious metals, and even businesses. Be sure to do your due diligence before investing and speak with a financial advisor if you have any questions.
If you invest long enough, there’s potential to completely replace your income because the returns you receive from your investments will provide you with enough cash flow. Investing can also help hedge against inflation.
Investing In Yourself
Another area of investing to consider is investing in your financial capability. Financial capability is acquiring effective financial knowledge, skills, and attitudes and then using them to take appropriate action.
Reading books and articles, listening to podcasts, attending financial webinars, and reading financial news reports can help you increase your financial knowledge and stay informed.
Start Your Financial Journey with Lafayette Federal
At Lafayette Federal Credit Union, we provide the tools for our members to achieve financial independence.
With our low loan rates, nation-leading deposit rates, outstanding rewards, 24/7 online banking, and personalized services, we offer the resources you need to get your finances in order and start your path to financial freedom.