Tips To Ensure a Successful Financial Independence Plan

Almost everyone strives to be financially independent and create a goal of sometime being debt free and being able to sustain themselves on investment income so that they no longer have to trade hours for dollars, but how many people have a plan that they follow to achieve this goal??

Unfortunately often this is the dream everyone has but they do not take the needed steps to reach this goal – they basically forget to plan or stay the course of the plan.

Becoming Financially Independent is something that everyone can achieve, but it does take some work and some planning.

The following are some steps that you can take in your financial planning to help you reach this goal.

1) Live Below Your Means: This is a key starting factor for becoming financially independent and that is to spend less than you make. Doing this will free up capital to move you into the next steps

2) Emergency Cash Reserves. Always set aside 3- 6 months of expenses in an account from which you can withdraw money at short notice without incurring any penalty. For any short term unexpected expenditures, avoid using credit cards and use this cash instead.

3) Risk Management. Insurance is the surest form of risk management. So, insure your car, home, and other significant assets. You may also consider life insurance to help compensate for lost income and repay debts in case of death. While finalizing your insurance option, always choose the insurance type that suits your requirements, and work out the necessary amount of coverage which is affordable for you. Please be sure to investigate term insurance because you can often obtain more coverage for a lower cost and invest the difference.

4) Estate Plan. The basic features of a personal estate plan are a will, and a durable power of attorney as provision for your financial and medical care. In case of larger estates, you may require, in addition, a living trust, marital trusts, and charitable trusts. These will ensure that your assets are maintained and passed on to your future generations.

5) Goal Setting. You need to have your financial independence goals determined so that you make decisions based on your goals. In setting these goals determine what your lifestyle will look like and what is needed to sustain that. In doing this you can use this framework in your decisions and it will hopefully keep you from making decisions that don’t support your goals. This commitment to your goals will help you remain focused in the long run.

6) Investments. You need to have an asset allocation plan customized to meet your goals and to keep the element of risk within limits you find acceptable. Without this, your investments will be subject merely to the vagaries of the economy instead of being directed by your requirements.

7) Retirement Plans. The income for supplementing your social security will derive from defined contribution plans and benefit plans. During your working life, try to make as much yearly contributions to these set plans as possible. These funds grow fast as a result of tax deferral, and since they are sourced right from your paycheck, are relatively painless.

8) Tax Planning. This means taking advantage of all the possible tax deductions and tax deferred plans that you are permitted by law, as well as using tax credits wherever you are eligible. A good tax plan may save you thousands of dollars in taxes.

If you feel that you can’t handle all this on your own, seek the services of a fee-only financial advisor or a financial coach to devise a comprehensive plan according to what your assets and your needs.

Remember: Your financial security depends on the proper coordination of these separate wealth building steps.