Some basic principles have stood the test of time, and are considered cornerstones to helping you reach Financial Independence (FI). Let’s take a look at these principles together, and see where you are on the road to FI. You might just be closer than you think.
This article we get down into the nitty gritty because I wanted to give you a solid framework to start with as you assess where you are on your FI journey.
1. Take charge of your finances:
According to this study “one in three adults stated they were just getting by financially” and “one in four adults reported they were not satisfied with their personal financial condition, including their assets, debts, and savings”.
Something noteworthy about this study is that this was performed in 2018: during record low unemployment, in times of economic expansion, and before the pandemic. I can only imagine how those numbers and percentages have increased since then.
The first thing to remember is that YOU are the only one in charge of YOUR finances. (And if you’re not, that’s ok, I’m here to walk you through the process and help you get back in the pilot’s seat!)
YOU are the only one in charge of YOUR finances.
SO TAKE CHARGE.
2. Define your goals and make a plan:
Have you defined your future financial goals?
If so, do you have a plan to reach them?
As it has been said… “if you fail to plan, you plan to fail”. Talk to any CEO or owner of any business for that matter, you’d be hard-pressed to find one that doesn’t have goals and some type of plan for their company.
You my friend, are the CEO of your LIFE!
So it is very important that you set clear financial objectives and a game plan to achieve those financial goals.
Defined objectives and a set plan will help keep you from getting swept away by the latest marketing push and making those spontaneous purchases at Target (Yes, friend, they’ve gotten me too).
It will give you a why behind your choices so you don’t feel the need to keep up with the Jones’ and will protect you from making emotionally based decisions, which typically hinder your progress more than help.
If you’re goal-oriented and a dreamer, then take some time to enjoy thinking about what you want your future to look like down the road so you can make a plan to get there!
However, if you’re like me and don’t even know what you want for breakfast let alone what you want your life to be like in 5, 10, or 20 years, well let that’s ok too my friend, just start somewhere.
Determine a broad based goal to start working toward, and you will find clarity along the way with the ability to tweak your plan accordingly.
While goals and a plan, in and of themselves, won’t radically change your financial situation, they certainly are a framework by which to base your future decisions off of.
3. Shift your mindset:
For many of us talking or thinking about money can produce anxiety, and this often leads to not planning for our financial future and sometimes completely ignoring our finances all together.
For instance, You might be tempted to think about it this way: “I won’t be anxious if I don’t think about my money problems”. The problem, however, with this mindset is that it doesn’t address the problem.
-If you’re in debt, the debt is still there.
-If you missed a payment on your credit card, you’re still going to owe your original payment, plus interest.
-If you don’t have an emergency fund and you lose your job, you will still have to find a way to pay your rent/mortgage.
The cycle of ignoring your finances, and continuing to overspend only results in increased anxiety and debt.
Once you have your goals and plan laid out, it will be easier to not succumb to anxiety’s every beck and call, because you can remind yourself of the truth…you have a plan to get yourself out.
Another mindset shift you may have to make is to be content.
While on our financial journey I’ve discovered that so many of my financial decisions have been made out of discontentment. While difficult at times to acknowledge this, it’s also freeing to arrive at this conclusion.
Realizing I have ALL that I NEED helps me to say no to spontaneous and emotional purchases that can actually keep me from making progress on my journey.
Don’t get me wrong…There are still times when I make emotional-based financial choices, but I’m realizing that the more I practice saying ‘no’ to things that won’t help me reach my goals, the easier it gets.
A little bit of intentionality in my life has lead towards extraordinary financial gains.
4. Spend Less than you make:
Debt is one of the most common causes of stress and anxiety.
While there are several forms of debt, Credit card debt and student loans have been researched as two key players that are known to affect stress levels.
Many times debt is a late indicator that you are spending more than you make.
Now, this isn’t always the case, ie. You may have debt in the form of a mortgage, but that doesn’t necessarily mean you can’t “afford” your house.
In fact, many financially independent people choose to take out a mortgage rather than pay for their home outright just because it makes more sense to leverage their money using a lower-interest rate and to invest the remainder of their money with an investment platform able to yield them a higher return. (simply one example, and definitely dependent on the current interest rates).
The main takeaway here is, if you live below your means and spend less than you make, you WILL have money left over at the end of the month to pay down any debt you might have and eventually be able to start investing.
This my friend is where the power of a budget comes into play.
5. Pay off debts
For many, a look into our financial statements would reveal a significant amount of high-interest debts.
Listen, as imperfect humans we sometimes make choices that aren’t optimal.
Maybe you, like me, decided you needed that vacation SO BAD you put it on a credit card, not thinking twice about whether or not you could pay it off in full at the end of the month subsequently leading to an additional interest payment the following month!
Don’t beat yourself up over past choices, rather learn from them and create a budget and a game plan so you can get those debts paid off quickly!
Failing to make a decision or take action, is in itself, a decision, that will still produce an outcome. It just may not be the desired outcome.
For example, maybe you neglected to contribute to an emergency fund, and suddenly find yourself with an unexpected medical bill and no way to cover it, and have to put it on a credit card. Or maybe you thought some low-interest debt wouldn’t be a big deal, but you’ve realized in actuality, it is blocking you from making progress on your financial journey.
FRIEND, ALL IS NOT LOST!
You CAN take back control of your finances.
If you didn’t know my hubby and I dug our way out of close to $90,000 of student loans. It wasn’t always EASY, but it has definitely been WORTH IT! If we did it, you can do it too!
6. Be prepared for life’s unexpected expenses:
Emergency funds, liquid assets, Insurance (Life, Home, Auto, Renter’s) are all tools to help you be prepared for the unexpected.
There’s not a way to predict life’s catastrophe’s but there are many ways you can be prepared for them.
Follow along in my posts as we investigate together when and why you might need to have these things in your back pocket.
7. Understand and use employee benefits:
Do you know what type of retirement benefits or insurance your company offers?
Did you know many people miss out on FREE MONEY simply because they’re unaware an employee match is available!
Short/long term disability, insurance, paternal/maternal leave, bereavement leave, military leave are commonly some of the many benefits an employee might offer.
Talk with your companies HR rep to make sure you’re getting the most out of all your company benefits.
In contrast, if you are self-employed or a 1099 employee, it is pertinent that you seek out the best retirement accounts and insurance accessible to you.
Talk to a tax professional and become aware of any tax laws or implications that might affect your ability to quickly reach your long-term goals.
Educating yourself on your options will help you to streamline and optimize your financial decisions.
8. Invest the difference:
Ahh investing…such a misunderstood word.
Frequently associated with certain stereotypes or overlooked because of a misunderstanding of risk, long-term investing really is the secret sauce for reaching your long term goals!
For many the word investing conjures up the image of something only available to an old rich white man who likes to play golf and drink Arnold Palmers; well this couldn’t be further from the truth.
Investing isn’t bound by age, race, or socioeconomic status, rather it’s an opportunity available to everyone REGARDLESS of your age, race, or socioeconomic status.
In fact, did you know all you need is a social security number and a bank account to begin investing for yourself (or someone else, such as your child)? And thanks to many investing platforms now offering the option to invest with fractional shares, you can now start investing with as little as $1!
You guys! You don’t need $100,000 to begin investing or even $1,000! Simply taking a few minutes to set up a new account, you can begin investing today, and begin securing your financial wealth with as little as $1!
I want to point out that due to the inability of cash to keep up with inflation as well as the potential gains you may acquire because of compounding interest, it is widely suggested to invest your extra capital rather than keeping the majority in cash, for example, storing it under your mattress.
In this blog we’ll focus a lot on investing in the stock market because it’s accessible, has options for dividends, as seen here, yields consistent returns, and has a low-risk percentage when you take the approach of investing for the long term. In fact, according to this article, “From 1825-2019, the average total annual return was 9.56%.”
That’s almost 200 years of data averages showing that yes, while there is potential risk investing in the stock market (as there is with any type of investing for that matter) there’s an abundance of data to support that long term investors are likely to make huge gains on their money.
There are certainly other avenues of investing, for example, Real Estate, Bonds, or commodities (and at times you’ll find I post content related to these) but I also want to direct you to some amazing resources such as Bigger Pockets, that I’m confident will help you along your journey just as they have helped us!
In Conclusion
You work too hard for your money for it to be thoughtlessly consumed.
With a little intention behind your decisions, you can find yourself making progress on your financial journey, so why don’t you get started today!
I’d love to hear from you! What foundation are you working to improve on in your personal finance journey?
Comment below with tips and tricks you’ve found to be helpful on your journey, or questions you might have.
Sometimes all you need is the little reminder that you’re not alone, and YOU CAN DO THIS!
