We’ve all heard it: We need to learn to be financially stable as early in life as we can. And like much of the advice and steps to financial independence we get as teens and young adults, it’s absolutely true. Furthermore, Bloomberg conveyed in a recent piece that with tough financial times continuing around the world, achieving financial stability is more important than ever.
To make matters more complicated, any decisions you may have made about money in the past are going to affect your future plans as well; getting approved for a loan or a credit card, or even being approved to rent an apartment will depend on how financially responsible you’ve been in the past.
Top 5 – Steps to Financial Independence
With all of this in mind, here we’ll take a look at how you can be financially independent and make good money-related decisions.
Pay Down Debt
When it comes to paying off a credit card or a loan, people often end up paying a lot more than the original amount owed. The reason? Interest rates. The interest rates you have depend entirely on the financial entities and the contracts you signed, but one thing is the same for everyone: It’s wise to pay more than the minimum payment every month.
As Forbes has demonstrated with examples the steps and strategies to be debt free quite simply results in your owing more over the long term. So paying as much as you can as quickly as you can is a key step toward easing debt and achieving financial independence.
Invest in Your Future
In order to make sure you’ll be financially set for retirement, setting up a nest egg is essential. Putting money in a retirement fund is the most straightforward option. Some people also choose to invest in stocks, bonds, or even cryptocurrency with the hopes of earning more than they put in over time.
And others still decide on a safer route, opting for low-risk, low-reward options like certificates of deposit. Whichever type of portfolio you choose to build, use money that you won’t need to touch until you retire.
Build Up Savings
There’s one financial step that you absolutely cannot forget: savings. In our piece difference between Saving vs. Investing, we mention that while there are some advantages to investing instead, you want to have enough money saved up to handle unexpected expenses.
Some experts recommend that you save enough to be able to cover around 3-6 months of expenses should you suddenly find yourself unemployed. Others recommend simply putting away as much as you reasonably can each month.
Whatever your strategy, saving requires some organization and good money management –– but it can save you if you find yourself in a tough spot.
Establish Good Credit
Your credit score is basically a numerical representation of how responsible you are with financial decisions. On a scale from 300-850, anything below 579 is considered poor, and anything above 800 is excellent. Between those two, we also have “very good,” “good,” and “fair.” The quality of your score will affect your success rate when applying for loans, establishing rental agreements, and the like.
What’s most important as you look to establish good credit is understanding what affects your score. To this end, a guide to credit scores on AskMoney identifies things like your payment history, the total amount of debt you have, and the length of your credit history as major factors.
The timeliness and regularity of your card payments matter also, and for that matter having no credit at all also counts against you too, in a sense (as banks and lenders will have no way of assessing your responsibility). Learn and prioritize these factors and you’ll be able to build strong credit, which in turn boosts your financial independence.
Set a Budget
The key to being able to manage money responsibly is setting a monthly budget, and more importantly, sticking to it. Write down every monthly expense you have: rent, utilities, bank payments (such as credit cards or loans), other bills, transportation, and food costs. Don’t forget to include a bit for entertainment, and some for savings and investment as well.
Then assess your income, account for your expenses, and see what’s left over –– or what you may need to adjust. It’s a surprisingly simple process, and it will lead you to much better financial decision-making.
With the world’s current state, it’s more important than ever to strive for financial stability. We hope this list of top 5 steps to financial independence has given you some insight on how to go about doing just that.
