Happy Independence Day! 4 Ways to Find Your Financial Independence This Year

The Fourth of July is an exciting holiday that marks the independence and freedom of our nation with the 1776 signing of the Declaration of Independence. 

However you choose to celebrate this year - with hot dogs, fireworks and pool parties  - consider this: You've made it through a global pandemic. Average savings rates are at all-time highs. Could 2021 be your year to jumpstart financial freedom of your own?

Achieving financial freedom is a goal that almost everyone has. It brings you the personal freedom to do what you want. For most Americans, however, debt is a significant roadblock. In fact, the average adult has around $90,460 in debt.¹ This number is a bit high because it includes mortgage debt - which can be helpful "good debt" - with all other types of consumer debt such as credit cards, personal loans, student loans, and auto loans.

Credit card balances are particularly damaging if you don't pay off your credit cards in full each month. With interest rates in the 10s, 20s, and 30 percent ranges, your debts can grow every month they aren’t paid off. If you’re able, pay off your credit card balance in full each month. Additionally, pay them on time to help you build good credit. If possible, it’s best to treat your credit card like a debit card, meaning you don’t spend more than you have. Until high-interest debt like this is paid down, it is almost impossible to work towards financial freedom.

The good news is, there are strategies to pay down debt and work toward financial freedom. How can you do this? Here are four actionable ways to start working towards more financial freedom this year. 

Way #1: Make a Budget and Stick to It

If you want to be certain that your bills will be paid and savings goals are on track, then you need to set a monthly budget and do your best to stick to it. If you’re used to spending and saving as you please, sticking to a strict budget will feel hard at first. But over time, consistency in your spending habits will make following a budget easy and natural. Holding yourself accountable can help deter impulse buys, splurges and make your savings goals a bigger priority.

To make budgeting as easy and as automated as possible consider using free tools like mint.com (easiest), or personalcapital.com (better display, but more marketing), or YNAB.com (the most in-depth, also paid). If a live class would help you, consider Dave Ramsey’s Financial Peace University class (available online or in-person).

Way #2: Opt for Automatic Savings

One of the most effective ways to save more money is to automate the process. Determine how much you’re able to contribute to your savings account each month and set up an automatic transfer with your bank. Soon, you’ll forget this is even happening.

If your company offers a retirement savings plan like a 401(k), you may have the option to automatically defer funds from your paycheck to the account. Again, this is something that will happen without action from you, making it an easy and convenient way to build retirement savings.

Way #3: Look For Opportunities to Increase Your Income

Increasing your income is easier said than done, but it’s not impossible. If you’ve been at your job for a while and taken on added responsibilities, now may be an opportune time to speak to your boss about a pay adjustment. Or, searching for opportunities elsewhere could result in a bump in salary.

If you have a hobby you’re passionate about, look for opportunities to make some money with it. Put your art up for sale online, offer classes (cooking, dancing, gardening, etc.) through your local rec center or find odd jobs you can do on the weekend.

If you do find yourself able to increase your income, be sure to revisit your budget and determine how that additional money should be used. If it’s being spent frivolously, it’s not helping you work toward greater independence.

Way #4: Begin Building Your Portfolio

Once you have control over your debt, you’ll want to focus on building passive income - which can be done through investments. Start off simple by contributing to a retirement account, like a 401(k) or Roth IRA. Even small contributions now can grow significantly toward retirement through the power of compound interest.

If you’re looking to expand, consider the Alternatives listed on our website. Other popular options include utilizing a robo-advisor like Betterment. A robo-advisor allows investors to take a DIY approach to managing their portfolio.

When you're ready to take the next step, consider working with a fee-only investment advisor that can provide professional portfolio management and personalized advice on topics beyond investing.

Be cautious of most financial ‘professionals’, especially if they approach you. The industry is very predatory. Consider finding competent help at NAPFA.org, or hourly/project-based help at XYPlanningNetwork.com.

As you involve yourself in investments further, you may be tempted by other opportunities to invest, such as real estate, collectibles or other alternative investment classes. 

From what we've seen, most people don’t ever need these assets to be financially successful. Certainly don’t start there, as is common. Stick with low-cost, diversified investments like Vanguard’s Target Retirement funds and Vanguard’s Life Strategy funds.

Achieving financial independence isn’t something that happens overnight. If you plan and save, however, it really can pay off for you in the long run. Not only does it help you to build savings, but it starts strong habits for the future. If you're unsure where to start, an experienced financial professional can help address your concerns and develop tailored strategies going forward.