Regardless of your unique life outlook or career path, the principles for achieving financial independence are standard: support your lifestyle through assets, don’t incur debt, and save for a fruitful retirement. Financial independence means enjoying your lifestyle for the long run and being able to maintain it with or without a job.
Early planning is key toward achieving financial independence. With the right plan, you can begin accumulating the money you’ll need for the future and save yourself from financial stress later on. Below are five steps to consider when planning towards your financial independence goals:
Step 1. Assess Your Financial Situation
You need to know where you’re starting and how much you need to save today. This can help you understand what you want in a long-term financial strategy and, ultimately, how you want to live in your retirement. Regularly assess your goals to see if you’re still on track or if you need to make adjustments. These goals may change over time, so it’s a good rule of thumb to examine progress yearly. This includes monitoring discretionary and non-discretionary spending habits so your personalized financial plan suits your financial goals.
Step 2. Find Additional Sources of Passive Income
If you spend more money than you make, retiring with financial independence will be difficult. Increase your earnings by looking for other sources of other income beyond a routine paycheck. Multiple, small sources of passive income are often better than one large source that demands all of your attention.
Step 3. Update your Tax Strategy
The amount you pay in taxes varies based on your source of income and where you keep your money. AAFMAA Wealth Management & Trust Relationship Managers can offer educational resources to teach you how to minimize your tax liability while maximizing your income and investment opportunities.
There are many types of investment accounts that can potentially help you generate wealth that the IRS taxes at lower rates than traditional sources of income. A couple of examples are tax-deferred accounts and 401(k)s.
Step 4. Avoid Consumer Debt
High-interest accounts are often another barrier to financial independence. Credit cards, payday loans, and car loans all can hurt your finances and credit score.
By carrying monthly balances, you’re spending money on interest that you could use to generate passive income elsewhere. If you have debt, try to assess where you can cut spending and reallocate that money towards paying off your debt.
Step 5. Learn How to Enhance Your Investments
Employer-based retirement plans are a sound investment option to build your retirement portfolio. Be sure to contribute enough money to receive the full match from your employer. Programs that offer.
after-tax contributions may also allow you to roll them into Roth investment accounts that can grow tax-free income.
Markets will continue to fluctuate, so be sure to stick to your investment plan. As you near retirement, you may need to adjust your risk levels to help protect against market volatility.
These tips may get you started, but nothing can help you quite like an experienced financial professional who understands military members and their families.
Speak with a Relationship Manager at AAFMAA Wealth Management & Trust today to start preparing a strategy to become financially independent.