If you’re like most Americans and swimming in debt, becoming financially independent can seem overwhelming or unreachable. Many individuals who want to start working their way out of the debt hole say they simply can’t afford to make the changes necessary to begin investing in their future when really, they just don’t know where to start. With some basic knowledge and changes, there are actionable steps you can take today to start working your way towards financial freedom.
Don’t let the stock market scare you
It’s been said that “all finances are personal”. Many believe that if they aren’t doing well financially, then the market must not be doing well, and this just isn’t the case. The financial crisis of 2008 still leads many to believe that there just isn’t any reason to be investing at all. Even if you start small, there are benefits to begin investing. Even small amounts of money will add up over time, so the earlier you start investing, the better. Additionally, there are significant psychological benefits to just getting started. What’s important to remember is that time in the market can be more important than the timing of the market itself. Compound returns on your cash are a powerful thing. The difference between investing $25 per month starting at age 25 versus age 35 at an average 6% rate of return could be tens of thousands of dollars by the time you reach retirement age.
Low-cost index funds can be a great place to start investing. Index funds match the performance of the current market and generally have much lower expenses than other options, making them a good choice for beginners. Index funds also incredibly passive, so if the market is doing well or poorly, you won’t need to worry about which of your stocks to buy or sell.
Consider Low-Cost Housing Options
If you’re able to, lower your housing costs can save tons of money. Housing is one of the largest expenses that most individuals put money towards every month. One of the easiest ways to combat high housing costs is to have someone else cover your expenses. No, this doesn’t mean calling up your parents. Some ideas to cover your housing expenses include renting out a spare room to a roommate or hosting guests with AirBnB. For families, purchasing a duplex and renting out the other side or living in your home while you flip it can be viable options as well.
If none of these options are viable, just be sure you’re not wasting money by investing in more house than you actually need. If you live at your means, you’ll save dollars in the long run.
Avoid Buying New Cars
Besides the fact that the car will depreciate significantly in value the second you drive it off the lot, there are other factors to consider when purchasing a vehicle besides a high purchase price. You’ll need to keep in mind money spent on gas, maintenance, repairs, taxes, insurance, and interest on a lease or loan. Purchase a good-condition used vehicle that will save you money and run for years to come.
Track Your Food Spending
Starting a food budget is smart, especially since food is in among the top three expenses individuals have. Begin tracking your spending on eating out, meal kits, and groceries used to cook from scratch. On average, eating out costs nearly 5 times and meal kits 3 times as much as what it costs to cook from scratch at home.
If you plan ahead, there are many ways to combat high food spending. Plan out your meals ahead of time, check ads for sales, and eat before you go to the grocery store to minimize impulse purchases. Start thinking about money as food and consider that when you throw food away, you’re throwing money into the garbage.
Get Tax Smart
Reducing your taxable dollars is a creative way to save money while also maximizing your investment opportunities. Maximizing your 401(k) or Roth IRAs can reduce your taxes as well as making charitable donations. You should also consider reviewing your tax withholdings since many are not withholding enough money out of their paychecks.
By starting early and making more informed decisions now, you can make considerable steps towards financial independence. Smart investing and living within your means are great places to start. Consider talking to a financial advisor to find what tactics are out there that might bring added value to your financial journey.