As you celebrate Independence Day and all it stands for, we suggest that you also consider your personal financial independence. Everyone, no matter their monetary situation, strives to achieve financial security. It starts with accountability and diligence.
Not only is it July 4, but it’s also midyear, which is a terrific time to reevaluate where you stand financially compared to where you planned to be at the start of 2015. First, your budget is not a static document, it should be updated regularly as life changes often impact the bottom line. Reassess your budget and account for changes. If you don’t have one, make one. It’s nearly impossible to achieve your savings goals if you don’t know what’s coming in and what’s going out. The more knowledge you have the better off you are.
Next, review and prioritize debt repayment. There is good debt and there is bad debt. In general, if the financing outlasts the item you are financing, that’s considered bad debt. Consider using the benchmark interest rate of seven percent – prioritize paying down debt with a rate seven percent or higher first.
After you evaluate debt repayment, consider other priorities like saving for college, a house or retirement. Here is where I’d like to remind readers that you can borrow to buy a house or fund an education, but you cannot borrow to fund your retirement. No matter your age, saving for retirement should be a top priority. If you’re not contributing the max to your retirement plan, make that change. Second, ensure you have an emergency fund. Unforeseen issues arise and you want to be financially prepared. Don’t let an unexpected expense put you off track for the entire year.
Similarly, look at the vehicles you are using to save. Are you letting money sit in a savings account that is earning less than one percent? You should consider how to make that money work harder and smarter for you. Put more money in your tax-deferred retirement account, consider opening an IRA, or talk to your financial advisor on how to maximize your efforts.
Additionally, it’s never a bad idea to shop all of your insurance products every few years. Rates change and your life could change. Is your insurance still meeting your needs? Perhaps you need more or even less? After all, why pay for insurance if it’s not properly aligned with your needs…
If you are doing all the above, but want to take that extra step toward financial independence, we encourage people to take a hard look at the budget and determine what’s left over after the necessities are paid. Setup automatic transfers to the proper savings vehicle. Ironically, the more control you give up from your cash and money the more likely you are to be financially independent.
Finally, don’t forget your children. When considering your own financial independence, think about your children and their future. If they’re young, start teaching them important lessons now. If they’re older and ready to leave the nest, look at how you can help them become autonomous. In the end, you are only doing your adult children a disservice if they are dependent on you financially.
As you enjoy your July 4 celebrations, set some time aside to look at your financial situation and take some steps to become more financially secure. Check back to our blog often, I will be delving into teaching your children financial independence in my next post!