How to get financial independency / tips

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It may be the most important in life. Financial independency will give you you the flexibility to enjoy your family and free time, to pursue your dreams or enjoy your retirement. Financial independency does not simply mean being out of debt. To be independent means being comfortable with your income and your financial future. Financial independency means to know how to live within your means, and having enough of money to accomplish your goals. Getting out of debt is the first step to financial independency. There are three important things which must be under control:

1. The first is gaining debt freedom

It is absolutely necessary to resolve your debt to achieve financial independency. You must make a list of all of your debts, and rank them according to amount, type, and interest rate. It must be your goal to pay off all of the personal loans and credit card loans as quickly as possible. The normal car loans can either be paid off next or paid off over time. For the case your student loans have a low interest rate (a low rate means below 5-6%), then paying them off does not need to be a priority. Your mortgage is considered to be a good debt. Also paying this off early is not necessary for financial independence freedom unless you have solved the problems with the other loans. It may be a good idea to look for help paying off your debts. Possibly you may need to consider getting some sort of debt help such as debt settlement or debt consolidation.

2. The second step is to control your expenses

It is necessary to learn to manage the expenses. This is a big part of paying down debt. But the management of the expenses is also important for people who don’t have debt. An important thing is that your expenses should be at least 20% lower than your income. This behavior allows you to respond to any financial surprises. And also it is possible to save and to invest money for the future. If currently you are living paycheck to paycheck, or are possibly close to it, list all of your expenses and income and see where cuts are possible or a improve your income. Accomplishing both types of behavior would give you the most benefit. Once you have reduced your total expenses, then you are able to use the difference to pay down debt, to contribute to savings and possibly also to invest in your retirement.

3. The third step is saving for the future

It is really important. Once your debt is eliminated and your expenses are manageable, then you must save for the future. There are following three aspects to saving: The emergency fund, Investments, Retirement investments. For the case you have a retirement plan at work that offers matching funds, contribute at least so much that you receive the full match. If you are there then you can decide how much more to contribute if you want to do it. If you do not have any matching, it is necessary to contribute to the plan anyway. Due to the wonders of compounded interest, you will be very amazed by how the money will grow. Additional to the retirement, you should establish a personally emergency fund. In the ideal form this fund should contain enough to cover your life for three month’s expenses. It is better to save more. When your savings plans and your retirement plans are in place, then start to invest in the stock market. Index funds (the best are ETFs´) are the best way to save money.

4. The last step is to enjoy the financial independency

After you have achieved financial freedom there will be a lot of changes in your life. You will no longer experience the day-to-day stress. There is no worrying about paying bills and there will be the financial flexibility to take a vacation, support your children and grandchildren and to, retire early. Financial independency is more than a financial status, though. Financial independency is also a mindset.

18.02.2009