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Imagine if you could travel the world, buy a new car, or build a new home without worrying about money. Sounds too good to be true, doesn’t it? Even if you have a great job, it’s easy to run out of financial resources. In between mortgage payments, credit card debt, and daily living expenses, it might seem impossible to get ahead. However, it’s possible to live financially free. All you need is a plan. Read on to learn the steps you can take today to gain financial independence.
Define Your Lifestyle Goals?
Let yourself daydream a little and think about your ideal day. How would you spend your time? Would you spend the morning sipping coffee in bed or take leisurely walks and garden? How you want to live makes a huge difference on how much money you’ll need to get there. Remember that the more extravagant your lifestyle is, the less you will have. You need to adopt a minimalist way of thinking to reach your goals.
Forecast Your Expenses
Before you can project future spending, you need to take a look at what you’re actually spending. Unless you’ve had a major change in your debt-to-income ratio, use the last three to four bank statements as a guide. Create a worksheet that itemizes all of your expenses. These should include all your living expenses, money for leisure activities and retirement funds. Identify where you can scale back and save instead. If you’re planning on downsizing your home, think about how your expenses will change. The difference in residual money can be placed in a high-yield savings account.
You should also take a look at your life insurance policy and decide if it’s still what you really need. As you get older, you may not need as much coverage, or you might want to take advantage of a life settlement payout. If you’re a senior, opting for a life settlement can give the money you need to live the life you really want. In some cases, you can get 20 to 30 percent return when you sell it to a third-party buyer.
Calculate How You Need
Once you have a clear picture of your current financial picture, you then need to calculate how much you will need to live free. There are plenty of online calculators you use to figure the exact amount prior to receiving your pension or Social Security.
Diversify Your Investments
Aside from your retirement account, you need to diversify your investment portfolio. The easiest, and one of the most diverse, are target date funds. These types of funds are low risk, and allows you to invest on specific dates closest to when you want to retire. If you want to withdrawal flexibility, you should invest in a Roth IRA. Contributions into a Roth can be withdrawn at any time. If you are a high earner, you can consider a traditional IRA and switch over to a Roth account later. One of the most common habits of successful traders is knowing how to diversify investments within the market, and through a variance of accounts as well.
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