Why Americans should want to be financially independent
When you are young, you may dream about finishing school and landing a job that pays you well so you can live comfortably for years. However, only 24% of adults between the ages of 18 and 24 are financially independent. Most are dependent on support from their parents.
Whether this is due to more heavy hands-on parenting or to the expenses of college, rent and food depends on individual circumstances. But one thing is true: More Americans need to be financially independent.
Many Americans live paycheck to paycheck
Young adults are not the only ones struggling to be financially independent. You may earn your own paycheck for a living, but because of debts and other expenses, you do not feel financially secure or independent.
According to CareerBuilder, 78% of American workers live paycheck to paycheck. While these workers may technically be considered financially independent, they really are not if you think about it. One major accident, one catastrophic event can push their expenses significantly over the edge and drive them into debt.
Many Americans are financially illiterate
A lack of financial literacy plays a direct role in an increase in poverty, debt, and reduced job opportunities as well as an increase in wealth and gender gaps.
Part of the path to financial independence is becoming more financially literate. Everyone should strive to understand how to be financially responsible for themselves and their families to help create opportunities and develop financial security.
How to become financially independent
Achieving financial independence varies on a case-by-case basis. Some people need to do more than others depending on their individual circumstances, such as debt or education. However, it is possible for anyone to become financially independent if they work hard at it and have a plan.
Some tips that can help you become financially independent include:
- Create a plan — The first step to becoming financially independent is to create a financial plan. Your financial plan outlines your short- and long-term savings goals and the milestones you would like to reach on your path to accomplishing them.
A financial plan needs to be flexible enough to help get you through a variety of circumstances, such as unexpected life events or when the market is bearing down. Doing this on your own can be difficult, but a financial advisor can work with you to develop and maintain a personalized plan to help you reach your goals.
- Stick to your budget — Make a monthly budget and stick to it. Outline how much you earn each month and estimate your monthly expenses, including housing, food, gas, bills, debts and day-to-day expenses. What you spend should be less than what you earn. If you can, spend less than what you allow yourself so you have a surplus at the end of the month that you can use to contribute to savings or to paying off debt.
- Build an emergency fund — Life can hit you hard when you least expect it, and often when it does, it takes a bite out of your finances. For example, an automobile accident can be expensive because you need to get a new vehicle and you might have to cover the cost of any injuries.
Create a high-yield savings account and invest in it regularly to build an emergency fund that you can use to help you get through these types of circumstances. This should be an amount to cover three to six months’ worth of expenses.
- Focus on eliminating your debt — If you have any debt, such as student loans or credit card loans, it should be a priority to pay them off. When you have debt, not only do you owe somebody money, but the interest keeps you owing them more as you let the debt live longer.
You want to be earning money from interest in savings, not losing it to interest in loans. Focus on eliminating your debts so you can invest more into your savings and start earning interest.
- Invest — Investing in your retirement plan or other long-term savings goals also needs to be a priority. This can be difficult when you have a lot of debt. You will likely need to balance your budget more in favor of paying off your debts at first, but you should always try to invest at least a little of your money so it can be allowed to grow over the years.
Plus, investing in tax-deferred accounts, such as a 401(k) or traditional IRA, helps lower your taxable income for the year, which helps you save money.
Talk to a ProVise CFP® professional about becoming financially independent
Reaching financial independence should be a goal for every American adult. If you are not sure if you are financially independent or do not know where to start, let a CERTIFIED FINANCIAL PLANNER™ professional from ProVise Management Group help.
We can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about becoming financially independent? Contact ProVise today to schedule a complimentary consultation.