This July Fourth, use the spirit of 1776 as motivation to get your financial life in order. Here are five tips to get started.
Precisely 240 years ago, a bunch of ragtag colonists declared their independence from the tyranny of a monarchy across the sea. On July 4, we will acknowledge their courage with celebrations all across America.
Many people will enjoy fireworks displays. Others will hit the beach, host a barbecue, or simply relax and reflect on how lucky they are to live in such a great nation.
But if you are deeply in debt — or simply on shaky financial ground — you can use the spirit of the holiday as motivation to break free of another type of tyranny: the prison of bad financial decisions.
Following are five changes you can make that will help put you on the path to financial independence.
1. Stop spending and start saving
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In the fourth quarter of 2015, the average American household held $15,762 in credit card debt, according to an analysis by NerdWallet. And we’re deeply in denial of the fact. According to NerdWallet:
Consumers vastly underestimate or underreport how much debt they have. In fact, as of 2013, actual lender-reported credit card debt was 155% greater than borrower-reported balances.
Just as our forefathers were able to imagine a nation of liberty long before it materialized, you need to believe you can climb and conquer your own personal mountain of debt. Starting this July 4, commit to paying down your debt a little at a time with every paycheck.
And it goes without saying that you should not add to your current debt unless an emergency requires you to whip out your credit card.
2. Don’t be afraid to invest in stocks
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Just over half of Americans — 52 percent — are invested in stocks, according to a recent Gallup poll. While that number may sound decent, it actually represents a record low in the polling firm’s 19 years of surveys on the topic.
Yes, investing in stocks can be scary. And a lot of people are even more afraid to invest in the wake of the Brexit vote.
But historically, the stock market has been the best place to build the type of wealth you will need to enjoy a sound financial future and retirement.
3. Work to improve your credit score
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Your credit score is probably the biggest single determinant of the rate you will pay on loans for cars, homes and other purchases. The better your score, the lower your payments will be.
And remember, those payments can last for years. So, a bad credit score today can really impact your finances for many tomorrows.
Improving your score should be a top priority. Fortunately, we have some tips to help you out.
4. Shore up your safety nets
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Surveys consistently show that Americans have very little money saved up for an emergency. In fact, just last week it was reported that 66 million Americans have no emergency fund at all.
But that can be a huge mistake, and a major savings drain. Not only does an emergency fund keep you from having to put emergency expenses on a high-interest credit card, but it also can save you money in other ways — such as cutting the cost of your insurance by allowing you to raise your deductibles.
As Visa’s Practical Money Skills for Life program points out:
Many people keep insurance deductibles high to keep premiums low. Would you have enough cash on hand to cover an insurance deductible if you had a sudden claim? If not, build your deductible amounts into your emergency fund.
Does it seem like money is too tight to build up an emergency fund? Again, we can help.
5. Celebrate your financial independence — but not quite yet
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If all of this talk of scrimping and saving threatens to turn your fireworks into a fizzle, remember that your goal is financial independence. America struggled hard for its own independence, but the payoff has been more than 200 years of freedom and prosperity.
Eventually — after you eliminate your debt, and save and invest wisely for many years — you will be able to enjoy the fruits of your labors. But for now, it is time to heed the words of Benjamin Franklin, who said: “A penny saved is a penny earned.”
Have any tips for achieving financial independence? Share them by commenting below or on our Facebook page.