The Fourth of July is a time to celebrate the freedoms we enjoy as Americans. But have you considered what it would take to achieve financial freedom? The first step is to define what financial independence means to you.
For many, it means being able to retire when they want and enjoy a comfortable lifestyle. If this is your vision, consider taking these steps to achieve it. First, pay yourself — you know this — now do it.
If you wait until you have extra money to invest for retirement, you may never get around to it. This is easier if you have a 401(k) or another employer-sponsored plan, because contributions are made directly from your paycheck. You can set up something similar with an IRA by arranging for automatic contributions to be deducted from your bank account.
Second, invest appropriately. Your retirement goals, timeline, and risk tolerance should guide your investment decisions. Taking on too much or too little risk may lead to choices that aren’t right for you and could set back your progress.
Your financial freedom roadmap
Third, avoid financial potholes. Debt is a significant obstacle.
The higher your debt, the less you can invest for retirement. Strive to live within your means. Unexpected short-term costs, such as major home or car repairs or medical bills, are another potential pitfall.
Build an emergency fund with three to six months’ worth of living expenses in a liquid, low-risk account to avoid dipping into long-term investments. Finally, give yourself some wiggle room. If your plan includes retiring at 62 or buying a beach house, you may be disappointed if you fall short.
However, with flexibility, such as working until 65 or renting a vacation home, you can still achieve an acceptable form of financial freedom. Working a couple of extra years or spending less on the home can also improve your overall financial picture. Taking these steps can help you move toward your financial goals.
When you reach your own “Financial Independence Day,” it may not call for fireworks, but it will certainly add sparkle to your life.
