(Last Updated On: July 16, 2017)
Independence Day is the perfect time to determine your goals to live financially independently. There are more resources available than ever before to help you create a healthy financial life. There are newsletters, websites, blogs, teleseminars, radio shows and conferences. I’ve listed several resources at the end of this article.
The first step in creating your financial independence plan is to determine your goals. Consider making short, medium and long term goals. Your goals must be in writing. Putting your goals in writing crystallizes them and gives them more force. If you keep your goals in only your head, you’ll forget them. We keep so much information in our heads that it’s hard to keep it all straight.
I routinely talk about the steps to create a healthy financial life – trimming your spending; getting out of credit card debt; getting clear about your credit report and score; and investing regularly and automatically. In this column I’m going to share some additional steps:
Paying Yourself First
We’ve all heard the saying “pay yourself first” but what does it mean? It’s not just an external action; it’s realizing that you’re important and you deserve to get paid first. Think of it as taking control of your road to financial independence. Begin by pulling out your most recent pay stub. Look at the money that’s coming out of your paycheck before you get paid. All those sources are getting paid before you. The best way to pay yourself first is to contribute to your company’s 401(k) plan. If you can’t contribute the maximum amount, start small, but start and start now! If your company doesn’t have a 401(k) plan, fund an individual retirement account (IRA).
Getting a Will
Approximately 70% of Americans don’t have a will, even though having a will ensures your desires are documented. It’s a fairly simple document to create and it protects your loved ones. It ensures your assets are given to your family or other beneficiaries based on your wishes. In addition to a will, you should prepare a durable power of attorney for financial issues and an advance healthcare directive in case you are unable to handle your own medical or financial issues. Naming a guardian for your minor children is crucial. If neither parent is able to care for the children – without a will the court appoints a guardian for your children and it could easily be someone you don’t want to raise your children.
Reviewing Your Property for Named Beneficiaries
If you have property with a named beneficiary, it bypasses the instructions in your will. This includes life insurance, Individual Retirement Accounts (IRA), tax-deferred annuities, U.S. Savings Bonds and bank accounts in trust for others. When I started working for the Federal Government in 1975 I remember signing lots of paperwork, which included designating the beneficiary for my life insurance. Many of us complete and sign similar paperwork throughout our careers. But, how often do we go back and review and update our beneficiaries. When you are young, just starting out you might designate your mother or father as your beneficiary. Be sure to review all your properties when you get married or divorced to ensure the beneficiary is who you want it to be.
Reviewing Your Automobile Insurance
Most people have automobile insurance, but most of us probably don’t regularly review our policies or understand them. Automobile insurance offers third-party liability for bodily injury and property damage, collision, comprehensive, medical payments, personal injury protection and uninsured motorists. Make a date to pull out your insurance policy and review it. Or, make an appointment with your insurance agent to review your policy together. You may discover you’re paying too much for your insurance or you have too much or too little coverage.
I encourage you to determine and set goals and begin taking action if you’re ready to create a financially independent life.