Two questions. First, are you contributing to an IRA account for retirement? Second, are you doing the max IRA contributions allowable amount each year? (assuming you are eligible to do either) If you can answer yes to these questions feel free to move onto the next step in the Path to Financial Independence. If not you need to keep reading on why they can be so important for your future.
If you’ve made it this far that means you have a healthy emergency fund and have successfully paid off your high interest debt. Hopefully you have a plan in place to keep both of those victories in place and prevent sliding back into trouble. Now it is time to pay down moderate debt. A 4-8% interest rate may not seem like its high enough to worry about tackling right now. Some might argue that your money is better off in the stock market. I think it is critical to keeping up on the Path to Financial Independence.
Not everything in the personal finance world is pure optimization of assets through the use of beautiful spreadsheets. Don’t get me wrong, there are a lot of spreadsheets, and they are all beautiful, but sometimes decisions are emotional. Making some financial decisions for emotional reasons despite the math needs to be normalized. We like the quick “wins” of closing those smaller loan accounts early with the debt snowball method. It keeps us motivated to continue.
I’m not going to break any ground here telling you that high interest consumer debt isn’t good for your financial welfare. We all know that the first step toward a life of financial independence is to pay down high interest debt. Knowing the destination isn’t the same as knowing the directions for getting there however. There are several, very popular, methods for paying down debt at an accelerate pace we’ll look at later in the article so stay tuned.
Sure. “I was able to save $15,000 more in 15 minutes for retirement and you can, too.” Ugh, I know… I know. We all hate it when personal finance writers assume that just because they were able to do something then it should be easy for everyone else, too. That said, what I did was incredibly generic and could apply to a lot of people out there with a company-sponsored 401k.
I’ll agree that to pay bills on time isn’t the most revolutionary financial advice but it is very important. It is important beyond the obvious ‘stay out of debt and collections’ aspect of paying your bills. There are far-reaching effects of paying your bills late you will want to avoid where possible. I fully understand that sometimes people pay their bills late because they lack the funds to pay in full on time. This advice isn’t necessarily for that situation but rather for those forgetful among us who have trouble remembering to pay on time.
I wish I had a “back in my day college was the same price as a night at the movies, and I could work 4 hours a week at my part-time job to cover the tuition” type of college savings story to share here. Unfortunately I am a millennial, and college was already very expensive by the time I got there. I also voluntarily chose to attend a private university instead of one of the state schools I was offered scholarships for, and I’m sure that didn’t help.
Despite all of that, I found an unusual way to save a lot of money on my college expenses. I was able to convince my school of choice to give me a free MBA before I even took my first class. My college savings story is one I don’t hear enough about.
Did you already set up a budget you track and stick to? If not that is ok. I’ll help you build a simple budget to get you started on the path to financial independence. you update each month to track how you are spending your money?
If you do that is perfect and you are on your way to understanding your finances. If you don’t have a budget that is fine too since we’ll be working below to build one. I honestly don’t expect every person outside of the finance or accounting profession to have a budget they keep up with. Everyone needs to set up a budget but so few people have one they manage to despite the advantages.
Pandemic travel scones are a thing. Maybe a thing we invented but who cares. The COVID-19 pandemic upended the lives of nearly all Americans for almost the entire year (so far). We usually set up a budget each year that includes some traveling. Sometimes it is far away but more often a fun weekend close to home. We all know that isn’t happening but our pandemic travel scones recipe brings some of the magic home each weekend.
Do you already have a personal income statement you update each month or quarter? If you do that is perfect and you are on your way to understanding your finances. If you don’t have a personal income statement that is fine too since we’ll be working below to build one.
I honestly don’t expect many people outside of the finance or accounting profession to have a personal income statement they keep up with. Why would most people? Its a little odd. I’m a numbers nerd though, so odd is my game.