Every July 4, people celebrate our nation's independence by going camping, watching a fireworks display or grilling some burgers. Sounds like fun! Less fun, however, is living a life shackled to your debt. If you're interested in achieving financial independence, here are some tips to get you started.
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1. Take a serious look at your spending
Before you can create a meaningful budget, you have to know where your money is going. How much are your monthly bills? When are they due? You may want to note which bills are optional (like cable or a gym membership) and which are not (like your mortgage or your student loan payments).
In addition to gathering information about your bills, it's also important to track your discretionary spending. How often do you go out to eat? Have you been spending your weekends at the movie theater catching the latest summer blockbusters? While tracking your spending for a month should give you enough information to begin making changes, the longer you track, the easier it becomes to identify spending patterns.
2. Imagine the life you want and budget around it
Contrary to popular belief, budget is not a four-letter word. If you create a budget that reflects your priorities, it will actually enable you to live the life you want more easily. Let's say you notice that the majority of your spending goes toward eating out, and you're OK with that. Your goal isn't to deprive yourself of something that you truly enjoy. Your goal is to find a way to do the things you love while still meeting your financial responsibilities.
So start with your income and subtract your mandatory expenses, like housing and utilities. Then set some income aside for emergencies in a high-interest savings account, as well as some for your retirement fund. Now take a look at what's left over.
Is it enough to cover your desired discretionary expenses? If not, you have some choices to make. Maybe eating out is super important to you, but cable TV isn't. With many cable packages running $80 a month, canceling means you can eat out two or three additional times! If you have consumer debt, a low-interest balance transfer card offer may also free up some funds as well, as help you make headway in escaping your debt once and for all.
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