The Gig® economy is here to stay. One in 3 Americans is already an independent worker and by 2020, freelancers will likely be 50% of the work force. The Internet has fundamentally changed the nature of work: now anyone from anywhere can sell a product or service to whomever needs it.
We are inspired every day to hear about Fiverr® members reaching financial goals such as paying off student loans, producing dream artistic projects, and buying houses.
In celebration of American Independence Day, here are some financial independence tips beyond cutting expenses and increasing income.
1. Spend less than you make.
This is fairly intuitive, but still, this simple goal is difficult for many of us to meet. Only once you make more than you spend on a consistent basis over time can you reach long-term financial goals.
2. Save for retirement.
We all know we should be saving for retirement, and many of us do by putting money aside each month into IRA, 401k or 403b accounts. Still, how much should you really be saving for retirement?
TIME recommends using this financial formula.
(Monthly Spending – Expected Monthly Social Security/Pension) x 200 = Target Retirement
So, for example, if you’re spending around $4,000 every month and are expecting $1,500 each month in Social Security benefits, your net required liquid assets are $2,500 X 200: in other words, $500,000.
If you start saving earlier, the less you will need to save each month over time. Here’s the breakdown they give for each decade:
In your 20s: Current Monthly Spending x 10
In your 30s: Current Monthly Spending x 25
In your 40s: Current Monthly Spending x 50
In your 50s: Current Monthly Spending x 100
It’s a good idea to put as much of your money away as possible for retirement because it will compound (multiply) over time and you will pay significantly less in taxes: retirement accounts are tax free.
3. Create a vision for your retirement.
Formulas are helpful, but they might not be enough motivation. Think about what you’d like to do when you retire: take vacations, buy a second house, have enough money for assisted care (a year in a nursing home can cost around $84,000), etc. Having clear goals can help inspire you to maintain your retirement savings plan.
4. Diversify your investment portfolio.
Once you’re able to save enough money for retirement and still have some money left over each month, you can start thinking about making other kinds of investments. This is crucial because if your retirement portfolio takes a hit, other types of investments will likely save you. Diversifying your portfolio is the best way to manage financial risk.
If you’re feeling a little discouraged by your finances today, don’t be. It does take time and discipline to amass enough savings to invest. But if you’re patient, you can get there.
After you put money away into your retirement accounts, you can start investing in stocks, bonds, government securities, certificates of deposit, etc. The market is your oyster!
Happy 4th of July!
What are the main ways you achieve financial independence? Share your advice with us in the comments below.
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