What does financial independence mean to you?
The good news is that it can be whatever you want it to be. Here are five tips to help you make your vision a reality.
- Be specific about your goal - If you don’t know what financial freedom looks like, how will you know when you’ve achieved it? Write down your goal, and share it with your financial advisor.
- Pay yourself first - If you wait until you have extra money lying around before you save for retirement, you may never get around to doing it. By setting up automatic contributions into your employer’s 401(k) or an IRA, you can invest this money before you have a chance to spend it.
- Invest appropriately - Your time horizon and risk tolerance should help guide your investment decisions. If you take on too much or too little risk, you may end up making decisions that aren’t right for you.
- Avoid financial detours - Debt can slow your progress toward your goal: the higher your debt burden, the less you can invest for your retirement. And watch out for large, unexpected short-term costs, such as a major home or auto repair. To avoid dipping into your long-term investments to pay for these short-term costs, consider building an emergency fund containing three to six months’ worth of living expenses.
- Keep your options open - If financial freedom means retiring at 62 and buying a vacation home, you may feel disappointed if you fall short of your goals. But if you can be flexible with your plans – for example, working a few years longer or simply renting that vacation home – you could achieve a different, but still acceptable, financial freedom.