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Eleven score and 12 years ago, America’s forefathers declared that we all had the inalienable right to life, liberty and the pursuit of happiness. And today, for a lot of people, a life of liberty and happiness includes financial independence. There’s no one path to fiscal freedom, but there are certain economic truths that – while not necessarily self-evident – have proved effective in getting out from under too much debt and the tyranny of paycheck-to-paycheck living.
This July 4, declare your financial independence by following these seven steps:
1. Get financially literate
Benjamin Franklin said: An investment in knowledge pays the best interest. You can’t make smart financial decisions if you don’t at least understand the basics of money management. The Internet can be a great source of information, as long as you make sure you are consulting trusted sources. You can start your financial research at the LendingTree Smart Borrower Center, or try the U.S. Financial Literacy and Education Commission’s www.mymoney.gov.
2. Formulate a budget
You can’t make wise money choices if you don’t have a clear idea of your financial situation. Keep a record of all your income and expenses for at least two months. Use that as a framework for drafting your own declaration of financial independence: a budget plan that includes a monthly savings goal.
3. Sweat the small stuff
An Abraham Lincoln here, an Alexander Hamilton there and pretty soon you’re talking real money. Pay attention to the small, unplanned purchases you make, because they can add up.
4. Maintain an emergency fund
When, in the course of human events, the unexpected occurs, you need to be prepared. Always have stashed away enough money to cover at least three months worth of living expenses, so those inevitable rainy days don’t turn into financial disasters.
5. Avoid bad debt
Not all debt is created equal. Taking out a loan to invest in a home can be smart. But piling up debt to fund a lifestyle you can’t afford isn’t.
6. Save for retirement
If your American Dream includes retirement, start saving early and watch your interest earnings accumulate over time. IRAs and 401(k)s are great ways to invest and build wealth.
7. Invest for the long-term
Old Ben F. had a million witticisms, and here’s one more: Diligence is the mother of good luck. Don’t buy into get-rich-schemes. Most money managers will tell you that committing to a prudent financial plan for the long haul is the surest way to achieve success.
Before you commit your George Washingtons to any pursuit, it’s best to consult a professional financial planner.
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Published on June 30, 2008