Learn how to take control of your finances with these recommendations from BluPeak
Financial independence is a goal that resonates with many people, whether they want to break free from debt or secure a comfortable retirement. Financial independence is an important step toward living your best life.
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“Achieving financial independence is making wise budgetary decisions that can help free you from the constraints of a life ruled by financial obligations that don’t contribute to your overall net worth,” said Margarita Guerra, Senior Vice President and Chief Financial Officer at BluPeak Credit Union. “Whether you want to pay off debt, save for a new house or car, or are looking to retire early, it’s important to have financial resources available that will help you reach your goals.”
BluPeak offers the following tips and techniques to help you get closer to financial independence.
Set realistic short-term and long-term goals:
Think through what you want to achieve financially and ensure those goals are specific and measurable. Segment your goals with time frames – short-term would be less than a year, mid-term is 1-5 years, and long-term is anything five or more years into the future.
Determine how much you need to set aside each month by dividing the cost of the goal by the number of months until your desired achievement date. BluPeak offers a number of budgeting calculators to help consumers evaluate their budget and get ahead.
Get clear about needs versus wants:
Being able to differentiate between needs and wants is the absolute key to financial independence. Many people have a tendency to allow their expenses to grow each time they get a raise, bonus, or new job that pays a bit more. However, it’s the ability to live below your means that will enable you to achieve financial independence, regardless of salary.
Create a spending plan, aka, a budget:
With a spending plan, the most important thing is that it’s balanced so your expenses don’t exceed your income. If you’re spending more than you’re earning, you obviously can’t put money aside. If you’ve never actually put together a personal budget, this is the time to do it. You need to be able to account for every dollar.
Decide on a debt paydown strategy:
Super-size credit card debt is one of the biggest barriers keeping many people from achieving financial independence. Finance charges on many cards can be enormous and simply paying the minimum monthly payment isn’t going to cut it. There are different strategies that work and are motivating for different people, so choose one that works for you. Here are a couple of common strategies:
- If you have multiple accounts, paying off those with small balances first can be satisfying and provide motivation to tackle the bigger challenges.
- Pick the account with the highest finance rate and focus on aggressively paying that one down, then moving on to the account with the next highest finance rate, and so on.
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Build a right-sized emergency fund:
A lot of Americans live paycheck-to-paycheck, which puts their financial lives at great risk. In fact, Bankrate’s annual emergency savings report for 2023 showed that just 43% would have the funds saved up to cover a $1,000 expense for an emergency room visit or car repair. At the same time you’re paying down debt, set some cash aside to build an emergency fund. If you’re single with no kids, 3-6 months of living expenses may be sufficient. If you’re the breadwinner supporting a family, you’d probably be more comfortable with a bigger cushion of 6-12 months.
Evaluate your insurance needs:
Remember, few of us will be able to build an emergency fund large enough to cover catastrophic events, like a major car accident or house fire, which can wipe out your savings. That’s why having the proper amount of insurance is extremely important – especially if you’re the primary earner for your family. Most people have car insurance, and perhaps homeowners’ insurance, but take stock of your life and think about whether you might also need life insurance or disability insurance.
Open the right accounts for different financial goals:
Choose account types that make the most sense for what that money is earmarked to cover. For an emergency fund or other short-term goal like a down payment for a car, a basic savings account or Money Market account is a good choice because you’ll have easy and immediate access to the money when you need it, but it will be separated from your day-to-day spending.
If you’re saving up for a child’s education, it’s smart to look into a 529 savings plan, while an Individual Retirement Account (IRA) offers tax benefits to make retirement saving more attractive.
Adjust when needed, but stick with it over the long haul:
Saving and the habits that lead to financial independence take practice, so be patient with yourself and keep those long-term goals in mind to stay motivated. As your life circumstances change it’ll make sense to tweak your financial goals, but these same basic tips will still apply.
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