Tips On How To Be More Financially Independent
Posted on December 15, 2020 in Money
Debt payments can feel binding, like you’re stuck in this loop of large payments without any real benefit for you. To make matters worse, you pay hundreds to thousands a year with nearly no change to how much you owe the bank.
It’s time to start on your path toward financial independence.
No one said this journey would be simple, especially at first. But what it will be is worth it.
Why Start Now
Let’s be serious, those debts are not going anywhere and lenders aren’t going to simply just forget it. So why is it so important to start working towards your goals now?
What if I said I would give you $200 a month? How about $300?
Every single month, people place hundreds of dollars into the bank’s register without making a difference towards their debt, all because of interest payments. We are talking about thousands of dollars every year that never touch your actual debt.
One of the biggest factors for people pushing towards debt free and financial independence is the idea of making large purchases with cash. You may think a $170,000 house would cost you just a little more if financed, but the average 30 year mortgage rate is 2.79% APR. You would eventually pay more than $81,000 in interest alone to the bank.
Minimizing your lifestyle early on will allow you to save up for large expenses, and save hundreds of thousands of dollars through your lifetime.
Starting towards your financial goals now will also allow you to create a lifestyle within your budget. Items such as personal loans and credit cards give a sense of false security and false income, allowing you to spend outside of your budget.
Let’s just be honest with ourselves — a $30,000 a year income probably means you shouldn’t be shopping for a super nice, brand new car. It’s simply outside of your current financial means.
Becoming accustomed to a lavish lifestyle early on will create difficulty and tension when it’s time to take financial control.
Taking control early will allow you to create a lifestyle fitting until your income is ready.
Tip 1: Make a Budget
The first step to making any financial changes or actions is understanding your budget. Understanding your income and expenses not only tells you how much and where your money is going, but also allows you to look at what you’re doing from a more open manner.
It’s about more than just how much you bring in or spend, it’s also about when. If you get paid twice a month, be sure to separate your income and expenses into those two time periods.
For expenses, you want to create categories focusing on major debts such as your house or car, minor debts such as personal loans, and recurring debts such as credit cards. You also want to make categories for utilities, subscriptions, and other expenses.
Tip 2: Reduce Waste
When looking at waste in finances, you should be looking for physical waste, and budget waste.
Physical waste can often be easy to spot. How much food did you throw out this month? How much higher was the power bill this month? Did you even use the things you bought?
Waste can really add up, and reducing the amount of waste simply puts more money in your pocket every month.
Financial waste can now be evaluated now that you have a budget, too. Each thing you pay for has what’s known as a customer value, or how much that product is worth to you. Do the products you pay for meet the costs? It’s time to ask if you actually need certain things.
Consider Yearly Payments For Long-Term Costs
For items you have used for an extended period of time, which may have monthly fees, consider checking on discounts given for yearly payments.
Some items, such as game systems or business software, offer up to 50% off when paid for once a year versus month to month. These are instant savings that can help you pay for debt.
Of course, don’t push yourself into yearly payments if there is a chance you would cancel a subscription. It’s good to compare your choices with what you know you’ll be using for the long-term.
Tip 3: Make A Reasonable Plan
With your budget in place, and now that you’ve looked at potential waste, you can begin understanding what your resources are when it comes to paying debt.
You understand your own lifestyle, it’s time to ask yourself what you can accomplish with your income. You don’t want to cause yourself a miserable lifestyle, but you need to cut back within reason to pay back your debts.
Remember, the plan doesn’t have to remain so harsh over time — you could decide to attack your debt with every spare penny you have this year, except for the month of your anniversary because, well, that’s pretty important. Just be sure to maintain your plan on a path to your goals.
Pay Off Your Debts
Paying debts can be a bit scary — you’re taking funds that could otherwise go towards other things, or be saved for the just-in-case situations, and you’re handing it to someone else. It’s important to remember that you’re in this situation because that someone paid for your items, and it’s time to pay them back.
The need for security is still important, and this is why you should begin with paying off credit cards.
When paying off credit cards, it’s important to focus on one at a time. As this card is paid toward, you will find a decrease in your interest rates.
As this card is paid off, you will find yourself with extra funds. Consider taking these funds and place it toward the next card. Over time, these added funds create a large debt payment pool that will help you attack your large debts, such as your vehicle, without taking anything else from the budget.
Let’s say you had an extra $200 after completing your budget every month. If you pay that $200 on top of your credit card minimum of $110, these $310 in payments will quickly decrease your debt. Once that card is paid off, consider taking the entire $310, and adding it as an extra payment toward your next card each month. If your next card is only $80 a month, this will create a $390 payment.
It can quickly become more financially feasible to pay more towards a card, because if something were to happen and you need those funds, you have available credit.
Tip 4: Try To Advance Your Career
When you think about correcting your financial situation, we often like to focus on the finances. Reality is, most people have growth and potential within their workplace or field that needs to be taken advantage of.
Is your current career your forever job?
As much as employers would prefer you didn’t, it’s time to think about yourself. Now we aren’t saying go into the office and quit tomorrow — you can actively look while remaining within your current position. As a matter of fact, you should always be asking around and looking to see if your dream position opens up, and apply for it when the opportunity comes.
Even if you are fairly happy with your workplace, consider just taking a look elsewhere or even looking for advancement within your team. The idea of losing you could encourage your current employer to give you that raise you’ve been asking about all summer, and having another offer in hand helps some employers better understand your value. Chances are, if someone else is offering certain pay, to replace you will take nearly that same price.
The Takeaway: Financial independence means you don’t rely on credit or debt to live comfortably; work toward financial independence by making and sticking to a budget, and paying off debts as soon as you can (within your means).
To achieve financial independence, something has to change. You either need to spend less, or earn more. Taking control of your budget and battling your debts can at first feel overwhelming.
Gaining a deeper understanding with Turbo Finance allows you to take on your financial battles with confidence that you’re pushing in the right direction.
Your financial focus is less about today, and more about tomorrow. We save today so we can fund our future dreams. Creating a life revolving around responsible financial decisions helps along the entire journey and creates success throughout all aspects of a happy life.
Related blog posts
Need expert financial advice?
Let TurboFinance connect you with the best consulting services and resources to help you take control of your finances and find a path to build wealth.Get A Free Consultation Today!