Most Americans know all too well that here in the United States, we celebrate our nation’s independence each year on the Fourth of July. (In fact, the holiday is marked by such star-spangled celebrations and red, white and blue revelry that — even for the uninitiated — the explosive observation would be hard to miss.) But did you know that there’s another national observation in July that celebrates a different and more personal type of freedom? Marked each year on July 1, National Financial Freedom Day is meant to bring awareness to the importance of someday achieving financial freedom. And while this can mean different things to different people, it is generally defined as the ability to live as you desire without having to depend on outside assistance, without carrying the burden of substantial debt or, eventually, without even having to worry about full-time employment any longer.
8 solid steps toward financial freedom
No matter how you define financial freedom, the steps to getting there are similar for most people, as how to become financially independent typically involves practicing financial discipline, planning ahead and setting money aside.
Are you ready to start making your own vision of financial independence a reality? Consider implementing these eight money-smart practices that can help you achieve your goal of financial freedom:
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Become familiar with your finances.
- To start moving toward financial freedom, you must first have a keen awareness of where you stand financially, along with a strong understanding of how much money you have coming in and going out each month. One of the best ways to do this is to create a household budget. In the process, you’ll gain powerful insights on details such as how much income you bring in each month, how much you spend paying off debts each month and how high your monthly expenses are. Perhaps most importantly, you’ll learn where you might be able to cut down on your expenses and save.
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Live within your means.
- No matter what your personal definition of financial freedom may be, you won’t be able to achieve it if you’re consistently spending more than you make each month. And of course, if you can find ways to live well below your means, you’ll have more money available for making regular and substantial contributions to your savings and other financial goals. This all starts with the budgeting step mentioned above, which can help you minimize your spending and maximize your savings. (And if you still find yourself falling short financially after budgeting and implementing spending cutbacks, you’ll need to find ways to increase your income — more on that below.)
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Pay down your debt.
- For many Americans, existing debts can be a leading obstacle to achieving financial freedom, and paying them down (or eliminating them altogether) can cut monthly expenses and free up money to devote to savings and other financial goals. A wise place to start is to initially focus on paying down any high-interest debts you may be carrying, such as credit card debt, as doing so can help you avoid accumulating the compound interest that can cost you more money. Another smart tactic to implement, especially after any high-interest debts are paid down, is to focus on paying off any large debts, such as mortgages and car loans, to lower your monthly expenses and free up money for other financial goals.
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Elevate your income.
- Of course, if you can find ways to generate more income, you’ll have more money to devote to achieving your financial goals. This can be accomplished by elevating your active income with raises, promotions, higher-paying employment, side jobs, etc., or by earning/increasing your passive income via things like an investment portfolio or rental income. One solid strategy for building wealth is to channel as much money as you can from your active income (the money you earn from working) into investments that raise your passive income (money accrued without having to do work). If done successfully over time, this can contribute greatly to your financial independence.
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Keep an eye on your credit score.
- Lenders use your credit score to determine how risky it is to provide you with a loan. And by improving your credit score, you can reap financial benefits such as lower interest rates and better terms on your mortgage, credit cards, car loans and other personal loans you may have or that you may want to take out. This, in turn, can contribute to your financial freedom by reducing the amount of money you have to devote to paying off debts each month. It can also help you more quickly pay off your debts and build more equity in the valuable things you own, such as your home and other financial assets.
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Build up an emergency fund.
- Even the best-planned paths to financial freedom can be derailed (or at least sidetracked) when major unexpected expenses arise. But by building an emergency fund, you can have easy access to the savings needed to cover many surprise expenditures, helping you avoid financial instability. (An emergency fund can also deliver a range of additional benefits, including added peace of mind.) Experts recommend saving enough in your emergency fund to cover three to six months’ worth of expenses, which can help you keep your budget on track should you lose your job or need to make major (and unanticipated) auto or home repairs, etc.
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Invest for the future.
- As alluded to above, one of the best ways to forge a path to financial freedom is through investments that generate passive income. Should you choose to start investing, whether your preferred investment choices involve stocks, bonds, real estate, certificates of deposit (CDs) or something else, experts advise that you aim to create a diversified investment portfolio. By including a mix of higher- and lower-risk assets in your portfolio, you can target growth while better protecting yourself against any potential losses in value with specific individual investments.
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When needed, get financial guidance.
- Financial know-how can, of course, vary greatly from person to person. But sometimes, even the most money-savvy of consumers can use the guidance of a financial expert. When it comes to important—and sometimes complicated—financial matters, be aware of what your limits are, and don’t hesitate to seek the help of a financial professional when you feel it could be beneficial. Sometimes, a bit of advice from a financial expert can go a long way toward putting (and keeping) you on the path to financial freedom.
Proudly serving South Carolina since 1933, Arthur State Bank offers accounts and services to meet a variety of financial needs. To help you achieve all your financial goals, the bank offers in-person service as well as a range of convenient digital solutions. To learn how Arthur State Bank can help you with banking needs ranging from checking and savings to retirement accounts, mortgages, other personal loans and more, visit arthurstatebank.com.