After walking across the stage, receiving your diploma, and becoming an official college graduate, the next step in your budding adulthood is getting your life and career underway. However, if you’re one of the 45 million American college students who graduated with student debt, that pathway toward your future can pose several tricky obstacles.
With a collective national student debt totaling over $1.56 trillion, it’s no wonder why so many college graduates struggle to enter adulthood with a clean financial slate. Achieving financial independence begins with a detailed plan and a commitment to tracking and saving your money for as long as it takes to reach that final step to freedom.
Using this step-by-step guide, we’ll walk you through how to become financially independent in 8 simple steps.
How to Become Financially Independent: 7 Steps to Take
Step 1: Create a Working Budget
Step 2: Set Achievable Goals
Step 3: Get Out of Debt
Step 4: Invest, Invest, Invest
Step 5: Focus on Building Your Career
Step 6: Create Smarter Safety Nets
Step 7: Stick to the Plan
How to Become Financially Independent: 7 Steps to Take
If you’ve grown tired of living under the weight of your financial burdens, there’s no time like the present to get yourself motivated and looking toward the future. Though the journey may be long, the pathway toward financial independence is one that’s paved with good fortune and ends with fresh beginnings. Rather than staying shackled to your post-grad debts, leap into 2020 with the keys you need to enter a golden phase of financial freedom.
Step 1: Create a Working Budget
If you’re constantly wondering where all of your money is going or often unsure of how much money is in your bank account, it’s about time that you created a working budget. Tracking your finances effectively begins with smart budgeting. By measuring your incoming cash flow and your outgoing expenses, you’ll get a bigger-picture view into your regular spending habits and precise insight into where your money is going on a weekly, monthly, and annual scope.
A good budgeting guide is the 50/30/20 rule. This plan asserts that 50% of all regular income should go toward necessary livelihood spending (i.e. rent, transportation, utilities), 30% should be left for flexible expenses and wants that fluctuate from month to month (i.e. groceries, hobbies, restaurant meals, etc.), and 20% should go toward personal monetary aims (i.e. building savings account or paying off debt).
A plan like this is supremely designed to give you increased insight into how your lifestyle affects your pockets. From there, you’ll be better equipped with the information you need to survey what expenses can be eliminated or reduced.
Everyone assesses and organizes their finances differently, so it’s ultimately up to you to decide what budgeting format works best for you. Be it via digital application or old-fashioned pen and paper recording, finding your preferred documentation venue is crucial. Fortunately for digital enthusiasts, there are plenty of mobile budgeting applications that make monitoring your money easily accessible from your smartphone.
Step 2: Set Achievable Goals
There is a huge difference between setting gratuitous goals that sound great in theory and goals that are based in reality. Opting for the latter allows you to take control of your finances with confidence rather than premeditated dread. Setting achievable goals is an excellent way to keep your mindset focused on future financial freedom.
By examining your current financial status, working budget, and debts, coming up with feasible goals should be fairly easy.
In need of some inspiration? Check out these wise goals:
- Cut and track your spending
- Save $__,____.__ by (Insert Month Here), 2020
- Grow your savings account
- Keep diligent records of your finances
- Consolidate your loans
- Save on bills where possible (cell phone, utilities, car insurance, etc.)
- Pay off $__,____.__ of student debt by (Insert Month Here), 2020
Wesley Ward, marketing expert for an online faucet supplier advises, “Setting achievable goals is a key part in becoming financially independent. Setting lofty financial goals such as ‘I want to buy a $150,000 house in 3 years’ when you are $80,000 in student loan debt just isn’t possible. This may cause you to lose steam in your efforts toward financial independence or potentially fall off the path all together. Setting goals that are challenging yet attainable is the best way of staying motivated. Make sure to find that sweet spot in order to be able to crush your goals!”
Whether or not you decide to attach a number to your goals is completely up to you, but always keep in mind that the more concrete the goal, the more dedicated you’ll likely be to see those numbers appear on your accounts.
Step 3: Get Out of Debt
Though easier said than done, getting out of debt is of the utmost importance should financial independence be your end-goal. Before you can begin to hack away at your student loan debts, you should first hammer out the exact details of who you owe, how much you owe, and what you can do (and afford to do) to pay off your loans in a timely fashion that also minimizes the amount of interest you’ll be required to pay.
And don’t forget about other types of loans! Auto loan debt and credit card debt are the two most common types of debts college grads integrate into their outgoing expense report. The faster and more efficiently you’re able to square away these burdensome debts, the faster your track to financial freedom.
Step 4: Invest, Invest, Invest
Investing is an intelligent way to passively increase your income, should you play your cards right. While much of the investment income you earn is largely dependent on luck and insightful forecasting, it is income nonetheless. In fact, investing is one of the fastest ways to build wealth. With a bit of stock-investing education and an earnest effort to stay on top of your investments, you’ll be able to reap the fruitful benefits of letting your money grow—with the right company of course.
Pro-Tip: Invest in your retirement
Saving for retirement is one of the most important things college graduates should consider doing the moment they’re able to contribute. A 2019 Morning Consult study found that only 33% of millennials aged between 23 and 38 were actively contributing to a 401(k) or a Roth IRA account.
Depending on your particular situation, financial freedom may be a far-far away reality that could take decades to achieve. If you’re saving for retirement every step of the way, you’ll be fruitfully set to enjoy your golden years in peace and without worry about your wallet.
Whether it’s contributing to your employer’s 401k match or kickstarting a Roth IRA account, investing in your future (and in your happiness) means investing in your retirement.
Step 5: Focus on Building Your Career
As much as you may wish that money could grow on trees, the hard reality is that you’ll likely have to put in years of hard work to achieve your financial independence dreams. In order to do so, you’ll need a steady stream of income to support your lifestyle and pay for your routine bills.
By setting your career goals high, you put yourself in a great position to grow quickly and earn higher. Regardless of what industry your line of work belongs to, there is always a ladder to climb to increase your incoming cash flow. If that ladder-climb is too slow or has an intense learning curve, consider exploring lucrative side-jobs that feed into your income.
Step 6: Create Smarter Safety Nets
Emergency funds are an integral piece to the financial forecasting picture, but they’re rarely included in the average college grad’s plan. Think of your safety nets as emergency funds separate from your savings and purely dedicated to unexpected and sudden expenses. Even if you go years without utilizing your safety net savings, you be excellently prepared for an emergency should one befall you.
With these six steps in your back pocket, you’ll be well on your way toward achieving financial independence.
