Celebrate Your Financial Independence

Success means different things to different people.  Some define success as having a lot of money or prestige.  Others consider themselves successful because they have a work/life balance that allows them to pursue their passion.  Financial success also means different things to different people, and this definition changes over time.  For some, financial success means being able to open the monthly credit card bills without being consumed by stress; while others define success by being able to save for their child’s education.  What’s common to these definitions is that success is earned by managing your money successfully. How can you earn your financial independence? Well, we have a few suggestions.

Gaining control of your finances means creating a plan, or strategy. Your plan will help you identify the best ways to use your income to achieve your personal level of financial success.  As with anything, developing good habits helps you achieve your goals, and following your plan faithfully will help you establish these habits.  For instance, it’s more difficult to overspend when you use cash, a fact that’s overlooked by modern society for the sake of convenience.  However, statistics show that we spend less money when we have to take cash out of our pocket.  When using cash, you have to apply critical thinking to where and how you’ll use your limited resources, which makes for smarter decisions.  With plastic, you’re more likely to spend more because your credit limit is less tangible than cash. You’re spending against an imaginary limit, versus taking money out of your pocket.

While we’re on the subject of credit, your financial independence also depends on getting out of debt, in particular, credit card debt.  Now, you don’t have to drain your savings to get out of debt, you just need to make informed decisions and develop consistent habits.  One of the easiest ways to get out of debt is to pay more than the minimum monthly payment – basic advice that actually works.  For instance, if you had a $3,000 balance on your credit card and paid the minimum monthly payment, roughly 3% of the balance each month, it would cost you $5,656.00 – over 12 years!  The monthly payment would start off at $90, and decrease each month as you repaid the debt.  By structuring a consistent monthly payment that is more than the minimum payment, you not only save money, you’ll also get out of debt much quicker.  Let’s say you decided to make a $100 payment every month until you repay the debt.  It would only take you about 3½ years, and cost you $4,000.  That’s a savings of time and money.

Okay, so how do you come up with the extra money to put toward your repayment? Let’s be honest, most people’s monthly budget includes a few wasteful expenses.  You may have a cable TV package with much more programming than you watch, a larger than necessary cell phone plan, an unused gym membership, or any number of expenses you can trim a little bit.  To get a handle on these bills and increase your monthly cash flow, examine each of your expenses.  When dealing with services such as cable and other utilities, go the extra step and contact the company’s customer service department to discuss reducing your monthly bill.  You never know what promotions may be running or if a more economical plan exists.  For instance, many internet providers establish your access with high-speed service, but offer a lower-speed option that costs less.  If you don’t need to load pictures in an instant or download tons of data, it may be a good option.

It’s important to remember that your plan for financial independence needs to grow with you.  From one stage in life to another, your income and expenses can increase and decrease, and your goals may change. Your plan has to be flexible and change with them.

Remaining independent also requires that you become financially literate.  To get up to speed on the world of personal finance, I recommend websites like MyMoney.gov, SmartMoney.com, Bankrate.com, and WiseBread.com.  These are just the tip of the iceberg, as a simple ‘Google’ search for the term “Personal Finance Websites” will yield plenty of results.  Finally, if you need any help developing your plan, determining expenses that you can cut, or simply want some one-on-one time with a financial professional, contact one of our counselors who’ll be happy to help. Until next time, I’m Thomas Fox for Cambridge Credit Counseling.

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