A step beyond financial stability is the goal of financial independence, a state in which you’re no longer dependent on working for someone else to bring in money although you certainly may choose to keep working. This may sound like a pipe dream or something that is only available to the very rich, but it’s not. People at all income levels can and do save enough money to put themselves in this situation, and it’s not just those who are offered substantial pensions and early retirement as part of the job package. The tips below can help you start saving toward this goal yourself.
First, you’ll need to do all the things necessary to achieve a degree of financial stability: get out of debt, with the possible exception of your home, and stay out of debt, creating a budget if it helps you be more financially responsible. If you aren’t making enough money to put some aside first to pay off debt and then for savings, you’ll need to choose between finding a way to spend less or increase your income. A part-time job or gig work that you do whenever you’re able can help supplement your income.
One reason that people fall into debt or are never able to really get ahead is because life inevitably delivers unpleasant surprises in the form of vet bills, car repairs, and other emergencies small and large. A few hundred dollars you didn’t budget for can put a real crimp in your spending for the month, and when this happens more than once, you can find yourself falling behind and putting things on your credit cards, which leads to growing interest. Therefore, your first step should be putting money away in an emergency savings account until you can cover at least three months of basic expenses. A high yield savings account is perfect for this because the money is easily liquidated but also keeps earning interest going forward.
One of the best tips for successful retirement planning is to start as early as possible. You should also prioritize putting money away for retirement from the time that you first start working. If your employer doesn’t offer a retirement plan, you can open your own account. It’s best to try to diversify your portfolio across a range of different vehicles and then leave the money alone because while the value of your investments will fluctuate, over decades, that value will very likely go up.
With your debts paid off, emergency savings in place and regular contributions to your retirement fund in place, it’s time to turn to other types of investing. This is where you can start to put your money into stocks that pay dividends, real estate and other income generating vehicles. Signing up with a brokerage account online is a fast and easy way to get started. You can plunge into investing and learn a lot about it in order to be very hands on, or you can go by the recommendations of a human or roboadvisor. The same principle from your retirement account applies about thinking long-term, but some people genuinely enjoy learning more about investing at this stage and doing some of their own buying, selling, and trading.