First 30 Days Blog

27 nov

A Roadmap to Financial Independence

JennaSmithEveryone wants to be financially independent, but the harsh reality is that only a small fraction of the population usually achieves it. While it’s often possible for a single event to devastate your finances, chances are good that there are multiple factors contributing to your lack of financial independence. The good news is that they are within your means to correct and control.

Step 1 – Assessment

Before you can know how to get to your destination you need to know where you are. The first thing you need to do is take stock of your finances and see exactly where you stand. In order to get an accurate picture of your assets and liabilities, you should account for all of your income and debts. Most people remember their larger debts like mortgage and car payments but many forget to account for student loans, personal loans, and membership fees. Don’t forget your assets, including savings, home equity, and retirement accounts. Here is a good list of debt management calculators from Bankrate.com/calculators.

During this step you should also assess your credit. You can get a free copy of your credit report from each of the three reporting agencies once every 12 months. If there are inaccuracies on your credit report you need to get them corrected. I found out more about correcting credit report errors at https://www.lexingtonlaw.com/credit-education/fix-credit/.

Step 2 – Plan

Once you know where you stand the next thing you need to do is determine your desired end goal. You need to figure out how much you will need to maintain your lifestyle in retirement. There are many helpful calculators available online that can help, including one from AARP.

Now that you have your starting line and your finish line, you can begin to connect the dots between the two. Here is where you develop your monthly budget. Be realistic in your expectations and strive to live within your means. Focus on paying your necessary living expenses, putting money away for retirement, and paying down your debts first. Anything left over can be used for vacations, buying a new car, starting a business, or whatever else you might want.

You should also establish an emergency fund. Unforeseen events can have catastrophic consequences to your financial stability. An emergency fund provides you with the means to deal with those events with minimal financial consequences. You won’t have to incur additional debt. You won’t have to reduce your retirement savings. You will already have the money you need.

Now you can make adjustments and fine tune your budget. You may need to reduce spending or increase income in order to reach your goals. In either case you can identify the specific need and make the necessary adjustments to stay on track.

Step 3 – Monitor and Maintain

This is the step that never ends. None of what you have done up to this point will matter if you don’t remain vigilant and stick to your plan. Life changes, and when it does you need to change with it. Whether it’s a new job, new home, or new family member, you will need to constantly stay on top of your current situation and make adjustments to ensure that you are still on track to meet your end goal.

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Posted by Jenna Smith on November 27th, 2013 in Finances, Personal Stories | 0 comments

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