Finding Financial Independence for the Fourth
July 3, 2015 : Miranda Marquit - Guest ContributorLeer en español
Editor’s Note: Happy Independence Day! I hope you’re enjoying beautiful weather, summer food, fireworks and time with friends or family. Because we are always thinking about other people’s financial lives, and working to help out, we have a something a little different to think about in honor of the holiday.
As Americans celebrate the 4th of July holiday, independence is on the brain. Top of mind for us is financial independence. At first glance it might seem like a tall order, but almost anyone can achieve financial independence.
What is Financial Independence?
When you think about financial independence, do your thoughts jump to the phrase “independently wealthy?” Stereotypes might lead you to think that financial freedom requires a trust fund, large inheritance or six-figure salary. The reality is that financial independence is more achievable than that.
True financial independence means you don’t need to rely on others to take care of your needs. Financial independence is having the freedom to use your money to live your desired lifestyle without large debt.
The details of financial independence vary by person but, broadly, there are a few characteristics:
- Ability to care for your family’s needs without using debt
- Lack of high-interest consumer debt
- Ability to pay for some of your family’s wants without turning to debt, including using savings strategies to prepare for expenses ahead of time
- Saving for the future, including using tax-advantaged retirement accounts and emergency funds
- Peace of mind that comes with having adequate insurance so that unexpected catastrophes don’t devastate your finances
For many, the presence of a mortgage, student loan or car loan doesn’t detract from their feelings of financial security. Others, however, don’t feel comfortably independent unless all their debt is paid off.
Three Steps Towards Financial Independence
Financial independence is rarely bestowed on any of us. Instead, we have to take steps to reach that goal. The good news is you can start now on the journey that will result in long-term financial freedom.
1. Figure out what financial independence means to you.
Because personal finance is personal, you need to decide what financial independence means to you. To me, financial freedom is about being able to care for my son and me, contributing to charity, living comfortably in a small home and having money to travel. It doesn’t include high interest debt, even though I still make student loan payments and have a car loan. Decide on your own version of financial independence.
2. Tackle your high interest debt.
Create a plan to tackle high interest debt. The more you pay in interest to someone else, the less you have to use as you wish. Your debt pay-down plan can help you move more quickly to financial freedom.
3. Protect your finances.
Obtain the proper insurance policies to protect your assets. Build an emergency fund. Save for retirement. You can start small with these actions, and over time your situation will improve and financial independence will be yours. That’s something to celebrate.