It is a challenge to become financially independent especially when all you see are the challenges in front of you. You see that consumer debt seems to go up year after year with credit card debt and even student loans posting record highs every year. It can keep you up all night wondering if you will ever be able to manage your finances well.
To be independent with your finances, you need to be smart and keep tabs of the actions you take to make sure you are doing the right thing. Here are some of them worth looking into to help you stand in your own two feet with your finances.
Create and follow a household budget
One of the best things you can invest your time in if you want to be financially independent is creating a household budget. It seems easy enough at first but you can quickly be overwhelmed with all the items you need to monitor and keep an eye out for. Your income and expense items can come up to a lot of details to look into.
You need to remember that it is important to have a comprehensive budget. This means that you should list down all sources of income you have every month as well as all the payments you need to make. The good thing about it is that you only have to make a complete list at the beginning. As you move forward, you just have to make adjustments on it.
As you manage your budget, there are some constant goals you need to meet when it comes to money management. For one, you always need to make sure that your income is more than your expenses. If it is the other way around, you will have problems meeting your payment and saving for your future financial needs.
Pay your bills on time
If you want to be financially independent, you need to learn how to pay your bills on time. One of the immediate benefits this brings you is that you do not have to depend on family and friends to help you pay for your financial obligations. Being independent means managing your payments all on your own without the help of other people.
As you ensure that you pay your bills on time every time, this will develop into a healthy financial habit over the course of time. You may not realize it when you get older but that habit will help open up a lot of opportunities for you. For one, it can keep you away from unmanageable debt because you always make your payments.
As you do that, it will also improve your credit score because paying your bills on time account to a big percentage of your score computation. As you should know by now, a high credit score opens up a lot of financial opportunities for you. It can give you the chance to take out a loan with a low-interest rate or even be pre-approved for some loan applications.
Start saving for your retirement with your first paycheck
One aspect of being financially independent is having the ability to meet your needs all on your own. If you want to reach that stage in your life, you should be looking ahead and this includes your retirement. If you are just starting out fresh from college and you landed your first job, retirement planning could be the last thing on your mind.
You will have bills, student loans, not to mention the amount you need to set aside for living expenses. This can include your mortgage or rent, car or transportation expenses, and even your food budget. In all these, it can easily start to overwhelm you and you might start to put off planning for the future specifically for your retirement.
One thing you need to understand is that the sooner you plan for your retirement, the sooner you can reach that goal. You do not need to put a lot in your retirement savings at the beginning. The idea is to just get started and be smart about it. For one, you can take advantage of a 401k account at work. If your company offers a matching program, that can help you increase your savings. You can also consider investing in stocks to help your money grow over time.
Your emergency fund is part of being financially independent
Financial independence has a lot to do with getting through areas in your life on your own even the most challenging ones. If you do find yourself in these situations, having an emergency fund can certainly help you manage your situation. It can tide you through over until you get back up on your feet until that emergency passes. This is important because CNBC shares that more than half of Americans cannot cover a $1,000 emergency.
Putting together your emergency fund starts by looking at your expenses for the month. This would be an easier challenge if you have a comprehensive budget on hand. One look and you have a pretty good idea how much you need to cover for your expenses. This is a great starting point if you are serious about your emergency fund.
You can start saving money to cover for one month’s worth of expenses then you go from there. Keep in mind that you can save a small amount every month to reach your goal. You do not have to earmark a large chunk of your income for emergencies if you can’t because it can take away from your regular payments. Make sure that when you reach your emergency fund target, use it only for its intended purpose and not anything else.
Mind your credit card use
The path to being financially independent can be a challenging one but not impossible. One thing you can do is be mindful of your credit card use. If you are using it out of necessity because you are coming up short every month, you need to re-think your card use. It can bring your finances down and put you in a terrible spot.
If you are using your credit card, it has to be to improve your finances. One way is to organize your expenses like using one card for the groceries and another for expenses related to the car. You can also use your card and take advantage of the rewards to save money as well. You might be able to get a discount for airfare or even free hotel stays for your vacation.
Another thing you need to do with credit card use is that never charge more than what you can pay off in a month’s time. When your statement comes in, open it and pay the full amount every time. Choosing to settle only the minimum amount can lead to numerous penalties and fees which can increase the amount you have to pay back.
Look for multiple sources of income
If you want to be financially independent, you need to be able to manage your finances well and extra income can go a long way. This is why creating multiple sources of income can do great for your finances. Apart from your regular income, a side gig can help you get extra money every month. You can consider using your hobbies to your advantage.
If you love to bake, you can sell them to family and friends. You can even look at selling them online without much capital investment. The more you do it, the better you get at it and more buyers you can get. This can increase your income every month and even give you a viable option on how to make money in retirement.
It might seem like a challenging goal to be financially independent but there are ways to help you reach that target and strengthen your finances as well. You have to stay on course and make sure you are heading in the right direction.