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Financial independence can mean different things to everyone. A 2013 survey by Capital One 360 found that 44 percent of American adults believe that financial independence means having no debt. 26 percent said they had an emergency savings fund. 10 percent combine financial independence with the option of early retirement.
I define financial independence as the time in life when my assets generate enough income to cover a comfortable lifestyle. At this point, working on a day job is optional.
But what about the rest of America? How would you define financial independence? If you are looking for debt free, here are five areas that may be holding you back.
1. Have no clear financial goals
If you don’t plan on financial independence, you probably won’t achieve it. The future is full of unknowns, but having an idea of when you might want to gain financial freedom should be your first step.
Do you want to retire before you turn 65? Would you like to travel the world with your spouse as soon as you take early retirement? A significant amount of cash is required for both destinations. Hence, it is important to save as soon as possible in order to make those dreams come true. (See Also: 15 Secrets Of People Who Retire Early)
2. Don’t save enough
It is important to determine how much you are currently saving and how much you need to save to retire when you want or to meet some other important financial goal. Using a calculator like Networthify can help you play around with various money saving scenarios and make realistic predictions about retirement.
Another way to make saving easier is to automate it. Setting up an automatic weekly or monthly transfer from your checking account to your savings account takes the extra chore off your already full plate. Even if it’s only $ 5 a week, it’s enough to start building that nest egg. (See Also: 5 MicroSaving Tools You Can Use To Start Saving Now)
3. Don’t pay off consumer debts
If you have a credit card balance with you every month, finance cars, or pay the minimum on your student loan, compound interest works against you. Creating an aggressive plan for quick debt settlement should be a top priority for anyone serious about achieving financial independence. Otherwise, your money will work for your creditors, not you.
If you prefer to tackle credit card debt first, there are several debt management methods you can try, including the debt snowball method and the debt avalanche method. With the debt snowball method, you pay off the card with the smallest balance first and work your way up to the card with the largest balance. The Debt Avalanche Method is similar, but here you would pay more than the monthly minimum on the highest interest rate card first and work towards paying off the lowest interest rate card. Both methods are very effective and which method you choose really just depends on your preferences.
4. Surrender to the lifestyle
A high income does not automatically make you rich. As you advance in your career, the temptation to adjust your lifestyle to match your income will be pervasive. After all, you work hard. Why not reward yourself with the latest gadgets and toys?
However, if you continue to spend and live modestly, with every raise you make, you can put more money into travel or retirement. Financial freedom is around the corner when you resist the temptation to upgrade your home, car, and electronics to match your income bracket. (See Also: 9 Ways To Reverse Lifestyle Creep)
5. Be driven by FOMO
Fear Of Missing Out, also known as FOMO, is the modern day take on keeping up with the Joneses. Except now, you have access to the Joneses’ social media platforms for all kinds of fun adventures. Social media is a great tool for keeping in touch, but it can also make you spend all of your money on lavish vacations, clothing, spa treatments, and other extravagant things. Resist this urge. And block the Joneses on social media if necessary. (See also: Are You Letting FOMO Ruin Your Finances?)
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