Waging A Financial War For Independence
July 01, 2015At the heart of the American culture is a sense of wanting to be free and independent, yet many find themselves slaves to their finances. It could be mounting medical bills, credit card debt, or simply an inability to save for future goals. If you’re like me, you don’t want to owe other people money, and you certainly don’t want to work for the rest of your life so how do we break free from these financial chains? It starts by declaring war on your financial adversaries. In the spirit of July 4th, here are a few things you can do to win your “financial” independence:
Make a Spending Plan
Before you begin your fight for independence, start with a good plan. Track your expenses for the next several months using a spreadsheet, online budgeting tools, or any one of a number of smartphone apps. Ideally, you want to spend less than you make so as you review this information, look for opportunities to cut back on certain nonessential expenses. Once you have a pretty good idea of where your money is going, create a plan for how you would like to spend your money the following month.
Save for the Unexpected
In battle anything is possible. Events such as a job loss, car accident, or emergency travel can occur at any moment so give your spending plan a better chance of success by putting money aside for these and other unplanned expenses. A good place to put your emergency money is in a bank account or a conservative investment because you don’t want to have the value drop right when you need it most.
Reduce High-Interest Debt
A key to victory is to know your enemy. As part of your spending plan, make it a goal to pay off your high-interest debt—generally debt with an interest rate of 6-8% or higher—as quickly as possible. There are several ways to do this, including paying off the lowest balances first to gain momentum or paying off the highest-rate balances first to save the most money.
Plan for Non-Monthly Expenses
Fortify your defenses. It’s unlikely that you will have the same expenses every single month so make a list of regular, non-monthly expenses and determine how much you plan to spend on these items over the course of the year. Divide the total by 12 and set aside this amount each month in a planned spending account so that you can cover these non-monthly expenses when they come along without disrupting your cash flow.
Save for Long-Term Goals
Just because you win a battle doesn’t mean you’ve won the war. As you win control over your cash flow and debt, begin to incorporate saving for long-term goals like buying a home, sending a child to college, or taking a permanent vacation. Determine the amount per month to set aside to reach each milestone. Continue to do this until financial independence is achieved!