Achieving financial independence early is an ambitious goal, yet that doesn’t necessarily mean it is unachievable. Financial freedom sounds out of reach and in the distant future for most, but it is achieved with smart spending habits, responsible saving, and just a tiny dash of luck.
The first step is to envision your plan. Begin by selecting a date you want to achieve financial independence and stick to that timeframe. Use online calculators as a tool to aid you in planning for what plan fits your savings and investment needs.
Frugality Vs. Cheap
One common misconception Americans make thinking that being frugal and being cheap are the same. The assumption could not be farther from the truth. The difference is that spenders who are cheapskates avoid buying anything of value, whereas spenders who are frugal only spend money on items they value. One rule of thumb is that many frugal spenders only purchase items they value. While practicality can matter to a frugal buyer, it is not the only deciding factor when it comes to purchasing items. For those who spend wisely, spending is more about the value and how much a specific item provides for you.
It may sound like common sense to start saving early, but it is worth mentioning, just based on how much today’s Americans overlook it. The earlier you save income, the more it starts compounding, and compound interest is one of the most important factors when it comes to income gained over a long period. Something as simple as saving 20% of gross income can effectively compound into a large number of funds.
Not All Debt Is Bad Debt
Debt has a bad rep, but when it is appropriately managed, it will work to your advantage. For example, you can use mortgage debt to build equity. Another advantage that concerns mortgages is that their payments are tax deductible. Credit card debt also can also be advantageous, if they are used responsibly and paid them off at the end of every month. The most advantageous way to accumulate debt is to amass it carefully and always be mindful of it to monitor it accordingly.
Think Long Term
Thinking long-term is a tricky proposition for a vast number of investors. One of the most beneficial strategies is to when it comes to investments, is to think in the long term. Investors who begin early in their careers have a greater chance of receiving higher investments on returns. There is also a good selection of plans that can impact retirement in a positive way. IRA’s and 401(k)s provide tax-deferred allotment and have great potential the early the investors partake in them.