In this season of the 4th of July, we have the chance to celebrate our freedoms with gratitude for the sacrifices of those who have gone and those who continue to go before us. When it comes to our household finances, sometimes it takes making current sacrifices in our personal lives so that we may celebrate a future financial freedom. Here are four things that can help provide financial freedom for you and your household:
# 1 – Create a Budget
Once we receive our paycheck most of us think we know where our money is going when in reality most of us have no idea. Making a budget allows us to give an account for our spending and to give each dollar a home.
- Assess your current state – The best way to get started in making a budget is to identify where your dollars are spent and what is necessary. Start by writing out a list of your current monthly expenses.
- Decide what’s important – Prioritize for each category and cut out what you need to, to balance your budget.
- Stick to the plan – Be diligent with your budget and as things change work to make tweaks as you go.
- Look ahead – Are you expecting to have big expenses in the future? Start saving now.
#2 – Build a Safety Net
Some big expenses aren’t expected. That’s why it’s important to have money stowed away for emergencies (loss of job, unexpected medical bills, car repair, etc.). Even if you can only afford to set aside a small amount each month, it is important to put these dollars away and not touch them unless it’s crucial. Sometimes life doesn’t go according to plan and when it doesn’t a financial safety net will keep you on track. To provide an adequate buffer from the unexpected, aim to eventually build your savings up to have three to six months living expenses on hand.
#3 – Pay Down Debt
- Create a plan – Make “Paying Down Debt” a category in your budget.
- Be informed – Know what your interest rates are and understand how interest rates can work against you. Here’s an example of the impact of high interest debt using the average US household credit card debt.
To see the effect of your debt, see the following debt payoff calculator.
- Be diligent – This can be a tough but worthwhile process for getting out of debt.
#4 – Take Care of Your Future Self
- Take advantage of free money – Does your employer have a retirement savings account? Chances are they have a match, meaning your employer will contribute to your retirement savings plan based on your annual contributions. Don’t leave free money on the table and make sure you capitalize on the match.
- “Don’t forget about me” – your future self. Try to save 10-15% of your income for retirement to help with the cost of living at retirement. Starting early has a significant impact upon your retirement balance by putting time on your side.
- Make contributions to your Health Savings Account (HSA). Set aside funds for health expenses now or in the future. Contributing to your HSA can provide you with a triple tax benefit: contributions, HSA investment growth, and withdrawals for qualified medical expenses are all tax free.
Happy Birthday America, let freedom ring!