The 6 Steps to Financial Independence

The 6 Steps to Financial Independence

Did you know better financial circumstances are just steps away? By understanding the following six steps to financial independence and their corresponding tips, and putting them into action, you give yourself a money makeover.

 

 

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STEP 1

Debt Management

Eliminating debt, or just getting it under control, can transform your finances. Less debt means greater financial strength, so you can start saving toward an emergency fund or other financial goals.

If debt management is one of your problem areas, and you’re in the U.S., then you’re not alone. On average, U.S. households carry revolving credit card balances of $9,333.* These are balances that carry from one month to the next. Up north, more than half of Canadians (58%) pay their credit card balance, if full each month, avoiding credit card debt and interest payments.**

The good news? There’s a way to clear up the financial blemishes that debt creates and have a better financial outlook. For simple tips and strategies, read on.

* Average Credit Card Debt in America: March 2020, ValuePenguin, March 2020 
** Focus: Household Borrowing in Canada, Canadian Bankers Association, December 11, 2019

 

STEP 2

Emergency Fund

When your debt is under control, you can free up money for an emergency fund. This cash reserve can be a lifesaver if you were to have an unexpected financial setback like a job loss or major car repair.

Unfortunately, Canadians or Americans are not taking this important step to financial independence. In a recent survey, nearly three in 10 (28%) Of American respondents indicated that they do not have an emergency fund.* A study north of the border found that 49% of Canadians are not saving for an emergency.**

Make sure you’re not putting your financial fitness at risk. An emergency fund can be the financial tool you need to protect your lifestyle and stay on track to reach your short- and long-term financial goals. The following tips may help you build and replenish one.

* A growing percentage of American have no emergency savings whatsoever, Bankrate, July 1, 2019
** Almost half of Canadians have no emergency funds, Which Mortgage, January 9, 2019 

 

STEP 3

Cash Flow

Change your cash flow and change your life! To start this powerful transformation, it helps to understand how it works.

Knowing how much cash you have on hand after you’ve met your monthly financial obligations is a good indicator of your financial strength. Negative cash flow may indicate that you’re spending more than you’re earning. Positive cash flow means you’re spending less than you earn and you have cash left over that can be used to pay down debt faster or put toward your goals and dreams.

It’s key to remember that when cash flow is strong and positive, you can use your money to your advantage. Here are some tips to get you there.

 

STEP 4

Proper Protection

Strong cash flow, an emergency fund and managing your debt are just the beginning of financial independence. Proper protection can bring it even more in reach.

Life insurance makes it easier for your family to move on if something were to happen to you.

The challenge is determining what type is best for you and how much you need. The following tips can help you understand how life insurance works, to help you have a productive discussion about your options with your life insurance agent.

 

STEP 5

Build Wealth

By building wealth you gain the power to work toward your long- and short-term financial goals.

You don’t have to wait until you’ve completed steps one through four to get started. Putting aside a little cash toward your future goals makes sense even as you work on managing debt, building an emergency fund, strengthening cash flow and protecting the ones you love. By doing so, you give this money – even if it’s just a few dollars –  more time to grow and, as you conquer your financial challenges, you’ll free up even more cash for wealth-building.

Here are some things to consider and discuss with your licensed financial professional.

 

STEP 6

Preserve Wealth

Once you’ve built enough wealth to sustain yourself through your golden years, it’s time to think about your legacy. Having a financial plan in place can help you ensure your legacy reaches your intended heirs.

It’s best to make those preparations as soon as possible, because the future is unpredictable.