Recently the financial independence, retire early (FIRE) movement has been spreading. The new goal of most working Americans is to retire at a younger age with enough money to live off of. Although it can take a lot of work the goal is not unreachable. Here are a few steps to help get you to financial freedom.
Decide what it means to you
Financial freedom can mean many things depending on the person. To some, it means being able to afford to pay their bills and still have money left. Others think financial freedom is having enough money to start a savings fund. Either way, people are looking to not have to worry about money and be stress-free.
Appoint a family member to keep track
Pick one member of the family to keep track of your bills and how much people are spending. This is not a role to regulate spending but to keep everyone aware of how quickly you are going through your weekly or monthly budget. Having everyone on the same page will keep your expenses in line and can keep you from accidentally spending too much.
Open various accounts
Different accounts are better for different types of savings. If you are saving for college the best account to have is a 529 plan. Meanwhile, if you are trying to save for retirement you would want to have it in a tax-favored 401 or IRA account. One of the best ways to save is to not keep the money in cash because it is easy to spend and lose track of. If you want to have an emergency fund put in in an account and keep it separate from your other savings, so you don’t accidentally spend it.
You should be making monthly or weekly deposits into your different savings accounts. This is the easiest way to make sure you will have all of the money you need when it comes time to take it out. One tip is to set up automatic deposits so you do not have to worry about forgetting and it will keep you on task. You should be putting about 10% of your income into savings.
Estimate your spending
Keep track of your spending from bills to small expenses like lunches and coffee. Doing this will help you estimate how much you spend monthly and yearly. The amount you spend a year will most likely be how much you spend when you retire. Therefore, you know how much you should save. Add 10%-20% to that amount to give you a little wiggle room in case unexpected costs come up.
Reduce your spending
The best way to save money is by not spending it. Therefore, you need to look at your spending and decide what you can cut. This is tricky because you have to find the balance between cutting out unnecessary spending and stopping yourself from doing things that genuinely make your life better. Although you want to have money when you retire or having extra money in the bank, you should not sacrifice the value of your life.