3 Simple Steps For Building Financial Independence

Every July 4, people celebrate our nation's independence by going camping, watching a fireworks display or grilling some burgers. Sounds like fun! Less fun, however, is living a life shackled to your debt. If you're interested in achieving financial independence, here are some tips to get you started.

1. Take a serious look at your spending
Before you can create a meaningful budget, you have to know where your money is going. How much are your monthly bills? When are they due? You may want to note which bills are optional (like cable or a gym membership) and which are not (like your mortgage or your student loanpayments).

In addition to gathering information about your bills, it's also important to track your discretionary spending. How often do you go out to eat? Have you been spending your weekends at the movie theater catching the latest summer blockbusters? While tracking your spending for a month should give you enough information to begin making changes, the longer you track, the easier it becomes to identify spending patterns.

2. Imagine the life you want and budget around it
Contrary to popular belief, budget is not a four-letter word. If you create a budget that reflects your priorities, it will actually enable you to live the life you want more easily. Let's say you notice that the majority of your spending goes toward eating out, and you're OK with that. Your goal isn't to deprive yourself of something that you truly enjoy. Your goal is to find a way to do the things you love while still meeting your financial responsibilities.

So start with your income and subtract your mandatory expenses, like housing and utilities. Then set some income aside for emergencies in a high-interest savings account, as well as some for your retirement fund. Now take a look at what's left over.

Is it enough to cover your desired discretionary expenses? If not, you have some choices to make. Maybe eating out is super important to you, but cable TV isn't. With many cable packages running $80 a month, cancelling means you can eat out two or three additional times! If you have consumer debt, a low-interest balance transfer card offer may also free up some funds as well, as help you make headway in escaping your debt once and for all.

3. Don't forget the long-term
While budgeting is important to make sure you're not digging yourself into debt, having a long-term perspective and goals is also an important aspect of financial freedom. Don't be so focused on the month-to-month that you neglect goals that will take months, years or even decades to achieve. Take retirement as a case in point -- what kind of life do you envision for yourself once your working days are behind you?

If you enjoy restaurant dining now, for example, you'll probably want to continue with that habit once you retire. But where will the money come from once you've no longer got paychecks coming in? Reducing your future expenses by paying off your mortgage, student loans and consumer debt will help improve your financial flexibility. So will increasing your future income by contributing to a retirement account now and letting compound interest work its magic over the years.

Freedom now, freedom later
If you've made some less-than-stellar financial decisions in the past, you may have to wait until you've paid off some debt before you can truly budget around your priorities. Remember, though, that earning more money is always an option too! By getting a handle on your day-to-day spending, you can make sure you have the means to participate in activities you enjoy.

Don't rest on your laurels once your monthly spending is under control, however. With any luck, you're going to live for a long time, and you should have a plan in place that ensures your financial freedom not only now, but for years to come.

This article 3 Simple Steps for Building Financial Independence originally appeared on Money Blue Book.

Bank of America + Apple? This device makes it possible.
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its destined to change everything from banking to health care. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here

You may also enjoy these financial articles:

How to grow your savings with a zero-sum budget

2 financial goals you should revisit every year

5 tips for building an emergency fund


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3025812, ~/Articles/ArticleHandler.aspx, 10/25/2014 11:41:38 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement