Dreweisenber2)5 Key Steps to Achieving Financial Independence

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In this video, we will talk about the 5 Key Steps to Achieving Financial Independence

Financial freedom—having enough savings, investments, and cash on hand to afford the lifestyle you want for yourself and your family— is an important goal for many people. It also means growing a nest egg that will allow you to retire or pursue any career you want—without being driven by the need to earn a certain amount each year.

Unfortunately, too many people fall far short of financial freedom. Even without occasional financial emergencies, escalating debt due to overspending is a constant burden that keeps them from reaching their goals. When a major crisis—such as a hurricane, an earthquake, or a pandemic—completely disrupts all plans, additional holes in safety nets are revealed.

Trouble happens to nearly everyone, but these 5 habits can put you on the right path.

The financial independence, retire early (FIRE) movement has grown in popularity as more people seek a way to escape the rate race well before the normal retirement age. Financial independence can look different to everyone, depending on what it means to you and what kind of lifestyle you’re hoping to achieve. If you’re interested in becoming financially independent, then creating a plan is the first step. If you want hands-on assistance doing so, consider enlisting the help of an expert financial advisor.

1: Set Life Goals

What is financial freedom to you? Everyone has a general desire for it, but that's too vague a goal. You need to get specific about amounts and deadlines. The more specific your goals, the higher the likelihood of achieving them.

Write down these three objectives:

What your lifestyle requires

How much you should have in your bank account to make that possible

What age is the deadline to save that amount

Next, count backward from your deadline age to your current age and establish financial mileposts at regular intervals between the two dates. Write all amounts and deadlines down carefully and put the goal sheet at the front of your financial binder.

2: Make a Monthly Budget

Making a monthly household budget—and sticking to it—is the best way to guarantee that all bills are paid and savings are on track. It’s also a regular routine that reinforces your goals and bolsters your resolve against the temptation to splurge.

3: Pay off Credit Cards in Full

Credit cards and other high-interest consumer loans are toxic to wealth-building. Make it a point to pay off the full balance each month. Student loans, mortgages, and similar loans typically have much lower interest rates; paying them off is not an emergency. However, paying these lower-interest loans on time is still important—and on-time payments will build a good credit rating.

4: Create Automatic Savings

Pay yourself first. Enroll in your employer’s retirement plan and make full use of any matching contribution benefit, which is essentially free money. It’s also wise to have an automatic withdrawal into an emergency fund, which can be tapped for unexpected expenses, as well as an automatic contribution to a brokerage account or something similar.

Ideally, the money for the emergency fund and the retirement fund should be pulled out of your account the same day you receive your paycheck, so it never even touches your hands.

Keep in mind that the recommended amount to save in an emergency fund depends on your individual circumstances. Also, tax-advantaged retirement accounts come with rules that make it difficult to get your hands on your cash should you suddenly need it, so that account should not be your only emergency fund. Though being financially independent can be defined differently for everyone, it generally means not being dependent on a job or anyone else to meet your expenses and maintain your chosen lifestyle.

When you’re financially independent, you have a savings account and investments that you can rely on to meet your expenses which can allow for greater freedom when it comes to things like deciding where to live or how to spend your time.

5: Start Investing Now

Bad stock markets—known as bear markets—can make people question the wisdom of investing, but historically there has been no better way to grow your money. The magic of compound interest alone will grow your money exponentially, but you do need a lot of time to achieve meaningful growth.

However, remember that—for everyone except professional investors—it would be a mistake to attempt the kind of stock picking made famous by billionaires like Warren Buffett. Instead, open an online brokerage account that makes it easy for you to learn how to invest, create a manageable portfolio, and make weekly or monthly contributions to it automatically. We’ve ranked the best online brokers for beginners to help you get started.

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