MANSFIELD, MA: We recently had a friend from New Zealand staying with us for a few days. One of my sons jokingly asked him, “Andrew, do they have the 4th of July in New Zealand?” He was quick to catch on and replied, “Of course they do, but they don’t celebrate Independence Day.”
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| Corey Shea Memorial Flagpole, Mansfield, MA |
Today, Americans are observing Independence Day. Most of us have been looking forward to this long-weekend because we’re able to enjoy a day off from work and spend our free time with friends and family. And just as we look forward to the 4th of July weekend, most of us look forward to celebrating another type of Independence Day – Financial Independence Day. This, of course, is not a single day free from work, but a period in our lives when we no longer need to work ever again because our expenses are met by unearned income.
While this is a laudable goal, it won’t be achieved by all. Some people work their whole life, while others retire early. Some people retire and live comfortably, while others are dependent on children and friends. Here are three tips to help you achieve financial freedom:
Spend less than you earn.
If you’re looking for a good book to read on the beach during this summer’s vacation, check out the 1996 bestseller, The Millionaire Next Door. While this book is now 15-years old, its message is timeless. Authors Thomas J. Stanley and William D. Danko explain that one of the keys to success is to live within your means. This can be accomplished by earning more – OR – spending less. The theme of the book is that society’s concept of a millionaire is wrong; most actual millionaires live a very simple lifestyle. In general, they are frugal and value achieving financial independence more than displaying high social status. In other words, they don’t try to keep up with the Jones’. After all, the Jones’ may be in debt up to their eyeballs!
Feed your 401k.
One of the most important things you can do to hasten your own Financial Independence Day is to continually save and invest for retirement. Take full advantage of your company’s 401k plan. If your company matches your 401k contributions, be sure to at least contribute the amount they will match; it’s like getting free money! Remember too that the government offers tax advantages to these types of qualified retirement plans. Most contributions are made with pre-tax dollars which means you pay less in taxes. Furthermore, your earnings have the potential to grow on a tax-deferred basis. This means your nest egg may grow quicker because you’re not paying taxes on the account until you begin to take distributions, typically at retirement.
Prepare for emergencies.
If you suddenly discover your home needs a new roof, or if a major appliance or car breaks down, will you have the money available to pay for it? Create an emergency reserve. The amount of your emergency reserve may vary according to the flexibility of your budget and your comfort zone. Bear in mind that this is the money that will see you through financial storms while you maintain a long-term strategy working toward financial independence. Your emergency reserve is not intended to cover all possible risks. For complete protection, get medical insurance, long-term disability insurance and fire protection for your home. Even policies with a large deductible can help if a crisis comes up. You can't avoid emergencies, but living without these types of insurance is an invitation to financial ruin.
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This article was written by Steve Davis and appeared in the column "Talking with Davis about Money Matters" found at http://mansfield-ma.patch.com/articles/financial-independence-day
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
