Four Steps To Achieving Financial Independence

Finances FYI Presented by JPMorgan Chase

By Aaron Allen, The Seattle Medium 

The meaning of financial freedom or financial independence is different for every family or individual. This could mean building generational wealth or a healthy savings account that’s flush with cash but regardless how one defines financial freedom or independence literally depends on one’s long-term financial vision.

According to Eli Taylor, who works for J.P. Morgan Private Banking, achieving financial independence is doable and requires the setting of goals; creating and managing your budget; paying down debt and saving; and evaluating your progress regularly.
“Achievable goals are going to be unique to each client,” says Taylor. “The first step to achieving financial independence is to define what that means to you and your family? What does that ideal lifestyle look like? Does a specific idea or goal come to mind? If so, I tell my clients that it is something you can look forward to, perhaps its early retirement or eventually downsizing to a less expensive living situation, it could mean paying down student loans, which leaves more flexibility. Having a better sense of future desires will help set up more achievable goals.”

No matter what financial independence and freedom means to you, there is no better time to start developing good financial habits than right now. To help you start, J.P. Morgan provides four simple steps that you can begin to apply today to better administer your money and financially give you a better peace of mind.

Step 1: Set achievable goals. The first step to achieving financial independence is to define what that looks like to you. What does your ideal lifestyle look like? Does a specific idea or goal come to mind? If so, think about it as something you can work toward. Perhaps it’s early retirement or eventually downsizing to a less expensive living situation, which leaves more flexibility in the near-term.

“[Determining] short-term, mid-term and long-term goals are crucial first steps in achieving financial independence so that you know what you are working towards,” says Taylor. “Have a plan around your goals, around a budget, debt management and investments and thinking about these is how I would advise my clients in regard to achieving their financial goals.”

Step 2: Create and manage your budget. Once you’ve set goals, it is time to create a budget. The type of lifestyle you want to establish will help indicate how much money will be necessary to earmark towards assets like savings, retirement and investments as families plan and work towards reaching their goals on time.
According to Taylor, a budget as a living document that fluctuates over time as spending evolves from month-to-month, quarter to quarter or yearly.

“This could be a good time to work with a financial advisor,” says Taylor. “The beautiful thing about my journey in banking is I started out as a teller, personal banker, financial advisor and now private banking, but I have had the privilege of working with clients from all ends of the spectrum. And what I have noticed is that it doesn’t matter really where you fall, creating a budget whether you’re just starting or even if your someone who is affluent, a budget is still going to be important. So, once you’ve set those goals and those intentions for your finances, it is going to be very important to create a budget.”

“For a more holistic approach to your finances your strategy will be unique to you, so your advisor should evaluate your full financial picture and offer research-based recommendations on investing, banking and lending needs,” continued Taylor. “Your advisor will also explain how certain life events and market cycles might affect your path forward, and help you adjust your strategy to stay on track.”

Step 3: Pay down debt and start saving. One of the more difficult aspects of manifesting your financial future is becoming free of financial hardship especially when you’re burdened by debt, and rising inflation.

According to J.P. Morgan, interest rates have fueled a 13% cumulative year-over-year increase in credit card balances. Paying down debt is a crucial component to your financial independence, and more than eight in 10 (83%) Americans prioritize paying down debt rather than saving for the future.

“It’s important to know that often we see debt as this huge, big number and often when we look at the amount of debt that some families have, it is overwhelming,” says Taylor. “It is important to know that you can break it down into bite sizes and start paying down some of those smaller balances as you work your way to paying down some of those bigger balances.”

Taylor also advises that it is important to save, even it you are only putting aside small amounts. He says that many of his clients are surprised how much can be saved over time even regardless of the amount of money that they choose to put aside on a regular basis.

“While paying off debt is important, establishing savings is also an essential component of financial freedom,” says Taylor. “It can be the cushion you need for unexpected expenses or emergencies that arise. Just look at how COVID exposed the unexpected. Building savings doesn’t just happen though, you have to be intentional about putting money aside.”

“Big goals start with small progress: If saving seems overwhelming, start small by committing to putting aside one dollar every day,” adds Taylor. “At the end of the month, deposit that $30 into your savings account and start the next month with the same strategy, you’ll be shocked at how much you’re able to save over time if you stick with it. And with automatic tools like Chase’s Autosave feature, you can schedule transfers from your checking account to your savings account, at an amount and frequency that’s most comfortable for you.”

Step 4: Evaluate your progress. Taylor suggests that revisiting your plan with a financial advisor on a monthly, quarterly or even yearly basis can help you manage your savings, monitor your financial progress and your spending habits. Revisiting and evaluating your plan also gives you valuable insight into opportunities that may be available.

“Again, we mentioned that your plan is a living, breathing document that can evolve,” says Taylor. “So, assessing your spending with what you planned to spend on a regular basis will help you better manage your spending habits, adjust your savings and monitor progress toward your long-term financial goals. It will also provide valuable insights into the areas where you’re spending the most money and if there is opportunity to revise. Review your budget regularly and monitor and evaluate your spending habits at least once a month.”

“Remember, achieving financial independence takes time and it’s important to regularly look for areas of improvement and determine what’s working and what’s not. Over time, you’ll find that managing your finances will become easier and more effective, creating a better financial future,” concluded Taylor.

Finances FYI is presented by JPMorgan Chase. JPMorgan Chase is making a $30 billion commitment over the next five years to address some of the largest drivers of the racial wealth divide.