When we complete our studies and find jobs, we all want to become financially independent. Statistics show that 23% of U.S. Millennials believe that young adults should become financially independent by the age of 25. However, this is easier said than done. You need to keep in mind is that financial independence is not something that just happens overnight. To gain it, you need to work on it regularly, have a detailed plan, and make strategic decisions.
So, to nudge your efforts in the right direction, here are 5 habits you need to develop to become financially independent.
1. Mind your own Business
One of the major reasons why we go into debt or spend so much money is to keep pace with our friends. But, have you ever asked yourself whether this unhealthy competition is really worth your financial stability? Of course it’s not. Huge fancy houses, fast cars, and state-of-the-art equipment have never been true indicators of success, especially not if you need to take out a loan to afford them.
So, instead of constantly trying to bridge this wealth gap between you and your friends, scale down your ambitions and set realistic goals, based on your current financial state. This is good for both boosting your long-term financial health and preserving your friendships.
2. Revise your Budget every Month
How many times have you bought a product you never used? Well, that’s called impulse spending and it’s one the greatest budget breakers and threats to your financial health. And, being financially independent definitely means knowing how to control your purchasing habits.
For starters, review your budget on a monthly basis and predict your expenditures on time. This is how you can determine your spending priorities, as well as eliminate unnecessary expenses. If you have plan to take personal loans, the priority is making sure that you can cover its monthly repayments. Of course, to get the most of this process, you can also use numerous accounting and personal finance apps that will keep you on track.
3. Always Improve your Knowledge
We’re living in the era of big data and artificial intelligence. Sophisticated software pieces and apps already help us complete our day-to-day, repetitive activities. And, it’s just a matter of time until they will start replacing us.
The point is, to increase your income and secure your position in your niche, you need to prove to your bosses that you’re irreplaceable. And, the only way to do so is to keep moving your career forward by improving your skills and broadening your knowledge. Observe this process as an investment in yourself. The higher value you bring to the table, the firmer your position (and your income) will be. As simple as that.
4. Assess your Insurance Plan Regularly
Accidents or emergency situations can happen to anyone. And, the purpose of insurance is to protect you and cover the costs of the accident for you. This is why you need to choose your insurance coverage wisely.
Namely, many people believe that the cheapest insurance is enough to back them, but this doesn’t have to be so. As your assets and income grow, your insurance coverage needs to grow, too. You need to analyze your insurance plan every month and adapt it to your needs. You don’t want to end up paying a large sum of money out of your own pocket just because you exceeded your insurance coverage.
There are some more effective ways to save on insurance. For example, you could change a provider or try to convince your agent to lower your premiums. Since many agencies offer massive discounts for the individuals that purchase multi-line insurance policies from them, you should have this option in mind, too.
5. Plan for Retirement on Time
Living our fast-paced lives and facing numerous stressful situations every day, we don’t have too much time to think about our future and long-term plans. After all, when you’re in your 20s or 30s, some life events like retirement seem so distant. However, this is one of the major mistakes we make. Here is why.
First, the traditional retirement plans are not reliable. The world’s population aging is growing, meaning that the number of working-age people contributing to the social security systems is plummeting. According to the Social Security Board of Trustees’ annual report, the costs of social security will surpass the program’s total income by 2020. This leaves the government with no other logical choice but to reduce or even suspend pensions for certain groups of people. And, for you, this means that you need to take your pension planning into your hands.
Second, social security programs cannot help you boost the quality of your life once you retire. They are here just to provide you with the bare minimum. In other words, if you don’t invest in your pension plans and long-term health insurance plans, an unforeseen health problem may wipe out all your savings one day.
Third, your pension influences your real estate and long-term financial plans, as well. If it’s not enough to cover all your costs during your retirement years and provide you with a decent life, you may be forced to liquidate your assets and, worse yet, become a burden on your family one day.
You don’t have to be a millionaire to gain financial independence and enjoy your life. Once you find a job you like and build up your nest egg, you need to start making strategic decisions. This means avoiding bank loans, keeping track of your expenses and, most importantly, knowing how to manage these expenses. Don’t forget to think about your future and make your insurance and retirement plans on time.