Wise choice of bread
Financial independence can mean different things for everyone. A 2013 survey by Capital One 360 found that 44 percent of American adults thought financial independence meant being out of debt, 26 percent said it meant having an emergency savings fund, and 10 percent associated financial independence with being able to early retirement.
I define financial independence as a period in my life when my assets generate enough income to support a comfortable lifestyle. At this point, work during the day will be optional.
But what about the rest of America? How would you define financial independence? If you’re looking for freedom from debt, here are five areas that may be holding you back.
1. Lack of clear financial goals
If you don’t plan on financial independence, chances are you won’t achieve it. The future is full of unknowns, but having an idea of when you would like to achieve financial freedom should be your first step.
Do you want to retire before you turn 65? Do you want to travel the world with your spouse when you retire early? Both goals will require a significant amount of cash, so it’s important to start saving as soon as possible to make these dreams come true. (See also: 15 secrets of people who retire early)
2. It’s not enough to save
It is important to determine how much you are currently saving and how much you need to save in order to retire when you want or reach another important financial goal. Using a calculator like Networthify can help you play around with different money saving scenarios and make realistic retirement predictions.
Another way to make saving money easier is to automate it. Setting up an automatic weekly or monthly transfer from your checking account to a savings account will take the extra task off your already full plate. Even if it’s only $5 a week, it’s enough to start saving money. (See also: 5 MicroSaving Tools to Help You Start Saving Now)
3. Non-payment of consumer debt
Whether you’re topping up your credit card balance every month, financing cars, or just paying the minimum on student loans, compound interest works against you. Creating an aggressive plan to pay off your debt quickly should be the number one priority for anyone serious about achieving financial independence. Otherwise, your money is working for your creditors, not for 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. In the debt snowball method, you pay off the card with the smallest balance first and then move on to the card with the largest balance. The debt avalanche method is similar, but here you must first pay more than the monthly minimum on the card with the highest interest rate while working to pay off the card with the lowest interest rate. Both methods are very effective and choosing one really comes down to your preference.
4. Pursuing a lifestyle
A high income does not automatically make you rich. As you move up the corporate ladder, there will always be a temptation to change your lifestyle to match your income. After all, you work hard, so why not reward yourself with the latest gadgets and toys?
However, if you continue to spend money and live modestly, you can save more money for travel or retirement with every pay raise. Financial freedom is just around the corner if you resist the temptation to upgrade your home, car, and electronics to match your income level. (See also: 9 Ways to Change Your Lifestyle)
5. Influenced by FOMO
Fear Of Missing Out, also known as FOMO, is the modern version of keeping up with the Joneses. Except you now have access to the Joneses’ social media platforms and they go on all sorts of fun adventures. Social media is a great tool for keeping in touch, but it can also make you spend all your money on luxury vacations, clothes, spa treatments, and other extravagant things. Resist this desire. And block the Joneses on social media if necessary. (See also: Are you letting FOMO ruin your finances?)
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