This time of year, we focus a lot on Independence Day. After all, it’s the American holiday! We remember when, as a nation, we declared our independence others, and began the rocky road to becoming a sovereign nation.
Each of us can declare our own independence day when it comes to our finances. Too often, we find ourselves financially dependent on others, whether it’s a job provided by “the man,” or whether it’s relying on credit card debt to make ends meet each month. After all, remaining financially dependent grates on the nerves. You don’t have to keep doing the same thing, though. You can declare your financial independence. It’s not easy, and it takes time, but if you persist, you will reach a point when you have financial freedom. Here’s how to create your own financial independence day:
1. Start Paying Down Debt as Aggressively as Possible
The first step to financial independence is paying down your debt as quickly as possible. Debt is the number one reason that you will never see a financial independence day. You need to create a credit card debt reduction plan, and consider tackling other types of debt as well. When you are paying interest to someone else, your money is not your own. When you have debt obligations, your money belongs to someone else. If you want to reach your financial independence day, one of the most important things you can do is get rid of your debt as quickly as possible.
2. Create Diverse Income Sources
Few of us think of having a job as a source of financial dependence. However, if you rely on someone else for most of your income, you are at the mercy of that someone. What happens if you are fired? If your hours are cut severely? While having a “regular” job is fine, you do need to take a step back and consider how much of your income relies on that one source. If you want financial independence — if you don’t want to be constantly worried about where your money is coming from — you need to start cultivating alternative sources of income. This includes starting a side hustle, making your money work harder for you through smart investing, or creating something that results in royalties. It can even mean a part-time job by someone in household, or just creating a large enough emergency fund to get you through tough times. The important thing is that you don’t rely too heavily on any one income source.
3. Figure Out Your Priorities and Live According to Your Values
Too often, we become involved in buying things we can’t afford to impress people that don’t really care about us. Or we get caught up in what “everyone else” has, or what we see on TV. Instead of spending on stuff that others see as a priority, make your spending decisions based on what’s important to you. Figure out your priorities. Decide what kind of life you want to live. Then bring your spending in line with those values. Once you get rid of debt, build up alternative income, and begin spending and saving according to what you find important, you will be on track to financial freedom. And, you’ll be that much closer to reaching your own financial independence day.
Jim Wang, the personal finance guru behind Bargaineering.com is actually a longtime, well-respected, and famous member of the FatWallet community. Jim is one of the experts in the finance forum and has been sharing knowledge and helping people out for almost 10 years. You may also connect with Jim on Google+.