Tips for Building Financial Independence

Did you know that 68% of adults in 2021 said they would be able to cover an expense of $400 with cash, savings, or a credit card that they would be able to pay off in full by the next statement? That’s up from 64% in 2020 and 63% in 2019. How goes your financial situation?

At a time when inflation is reducing consumers’ buying power, it’s essential to build a solid financial foundation. Doing so can help you weather proverbial storms ranging from job layoffs from to unexpected emergencies.

Here are some tips if your goal is to build a strong financial foundation that insulates you from economic pressures caused by events at home or abroad.

Build Emergency Fund

According to one survey, almost six of 10 of the 1,000+ participating adults say they’re uneasy about how much they have in their emergency savings accounts. That’s up from just less than five of 10 people the year before. If you don’t have an emergency fund or if your emergency fund is underfunded, now’s the time to build it up. Before you invest, you need to save. 

Some financial experts recommend having an emergency fund that has the equivalent of six to 12 months worth of monthly expenses. Doing so will give you a financial cushion so that things like pandemic-related shutdowns, layoffs, rising fuel prices, and increasing inflation aren’t enough to derail you. A well-funded emergency fund will give you breathing room and financial flexibility.

Pay Off Consumer Debt

The Federal Reserve Bank of New York reports that in the third quarter of 2022, there was an increase of $351 billion to $16.51 trillion in total household debt. During that same period, credit card balances climbed by $38 billion. That was a year-over-year increase of 15%. Meanwhile, auto loan balances rose by $22 billion in the third quarter of this year. 

It’s hard to build a firm financial foundation if you have a debt albatross around your neck. Focus on tackling any high-interest consumer debt before ramping up investment efforts. It’s still a good idea to save while you slash your debt load. But prioritize getting rid of your of debt. After doing so, you can focus on saving and investing more than you did before canceling debt.

Save and Invest

In addition to having an emergency fund, you need to have one or more savings accounts. The emergency fund is only for emergencies. It’s not for vacations, stainless steel kitchen appliances, or hardwood flooring for your den or living room. An emergency fund should be used if you lose your job, need to repair your car’s engine or transmission, need to pay for a roof repair, or some other emergency. You should have other savings accounts for other things.

It’s also important to invest. You can invest in stocks, index funds, mutual funds, bonds, real estate, and more. Do you want to add one or more rental properties to your investment portfolio? If you do, you’ll want to do your homework first. You need to get a mortgage loan, earmark money to do repairs before you can rent out the rental property, and do many other things. 

If you do invest in rental properties, you’ll want to consider the benefits of hiring a property manager. It will typically charge between 6% and 12% of rental revenue. But you’ll get the level of value that makes the commission fee worthwhile. A property manager will take care of your property, field tenant queries, arrange for maintenance and repairs, collect rent, find suitable tenants, market available units, and more. So, you can get a lot of help managing your property.

If you’re looking to make the sort of changes that enable you to build financial wealth, the tips above will lead you in the right direction. You might not have control over the economy, but you do have control over how you prepare to be able to weather any economic or financial storms.