Financial independence means different things to different people. For some, it might mean early retirement. For others, the ability to travel the world. It is the freedom to leave a job that is no longer personally or professionally fulfilling for many. No matter what financial independence might look like for you, if you ultimately want to declare your financial independence, here are three things you may consider.
1. Set Your Goals
Your financial goals are personal to you. They may depend on:
- Your age
- Your occupation and career path
- Your income
- Your family structure (single, partnered, with children)
- Your goals
If you are 30 and would like to retire at 40, your goals might look much different from someone who is 50 and wants to supplement their retirement budget to include international business class flights. Some people may wish to pay off all of their debt. Others might leverage this debt by taking out low-interest loans and using these funds to purchase additional assets.
Once you write down your goals, you may choose the tools and strategies to help you get there.
2. Choose Your Tools
Your tools may include assets, investment strategies, or personal decisions like pursuing a higher-paying career field or moving to an area with a lower cost of living.
Some of the tools you might consider in your journey toward financial independence include:
- Savings accounts
- Higher-interest savings vehicles like CDs
- Dividend stocks
- Primary or rental real estate
- Loan products (such as a home equity line of credit)
- A business or side gig
- A source of passive income
Depending on your circumstances and goals, you might investigate these options and deploy the ones that make the most sense for your situation.
3. Track and Budget Your Dollars
It may be hard to track progress toward your financial independence goals if you are not sure where your money is going. Having a written budget or using a budgeting app might allow you to see what spending changes you may want to make and plan how to allocate your dollars using the tools above.
You may also want to explore the savings and investment options available. You may have access to a 401(k), a Roth 401(k), a traditional individual retirement account (IRA), or a Roth IRA. You may have a Health Savings Account (HSA), a 529 college savings plan, and other financial vehicles that may allow your funds to grow tax-free or tax-deferred. A financial professional may work with you to see which options make the most sense for your tax liability and financial situation.
Those paying a low marginal tax rate might benefit from a Roth IRA and its tax-free withdrawals, while those in a higher tax bracket may manage their taxable income by setting aside funds in a 401(k), traditional IRA, or HSA. By knowing where you are, what tools you have, and visualizing where you want to be, you may follow your path to declaring financial independence.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
This article was prepared by WriterAccess.
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