While there is no official holiday for Financial Independence (FI), the 4th of July is about as close as you get to an unofficial FI holiday. Well, at least in my slightly off center mind. Mostly because July and FI rhyme, but also because everyone deserves to be free from government tyranny(1776) and the crushing oppression of modern-day debt.
July 4th was not the day that the Continental Congress declared Independence from Britan. That happened on July 2nd, 1776. Nor was it the day the American revolution started either. That happened in April 1775.
What did happen on the fourth of July? The announcement and official signing of the Declaration of Independence and the death of Thomas Jefferson and John Adams, are believed to be the reason we celebrate this important day in history on July 4th.
Undoubtedly the 4th of July is one of the most important holidays we have to celebrate the founding of this great nation. Like most holidays though, it has become a reason to buy stuff we don’t need and spend money we don’t have.
In the last week, I have received advertisements in the mail (and email) for 4th of July sales at Best Buy, Costco and multiple furniture stores. Now, something tells me these companies are trying to capitalize on the original altruistic intent of the holiday.
In my mind, there is a stark similarity between those early colonists that sought to create the foundation for the United States and modern-day Americans that seek to find independence from the ubiquitous debt. They just want to be free.
This month of July, declare financial independence from your debts. Decide to take control of your finances and build wealth for yourself. With 5 simple steps, you can either get a fresh start or get back on track.
5 Simple Financial Independence Steps
An emergency fund cushions the financial impact of an unexpected expense. No family or person is immune from an unexpected expense like a flat tire or a refrigerator that dies in the night. Without an emergency fund, these emergencies are financed with debt through store credit or credit cards. By paying for emergencies with credit you are making the bank rich.
An emergency fund does not have to be this huge sum of money. It can start small and grow through contributions from your take-home pay. Many high yield savings accounts have no minimum amount required to open the account.
Tip: If saving does not come easy to you, check with your payroll department. Most large companies will allow you to split your paycheck into two direct deposits; one for your high yield savings account and one for your checking account.
Pay Off Debt
Once a year, I like to list out all of our debts and bills. Our debt list is short(our mortgage) but our list of bills feel like a mile long. I like to go through this list and cancel subscriptions that we no longer use or are redundant. Overlapping streaming services for tv and music are the most common culprits. In one hour I can usually come up with $50 per month that was no longer bringing value to our lives.
Similarly, listing out debts and calculating total monthly interest charges. This exercise can be an eye-opening experience, especially when you find how much of your income is being consumed financing debt. Let this be ammunition and motivation to start attacking your debt.
One debt repayment strategy, made popular by Dave Ramsey, is the debt snowball method. Start by listing out all debts, largest to smallest. Pay the minimums on every debt except the smallest. Throw every extra penny you can scrounge up towards that smallest debt. Continue this every month until the debt is paid off. Now focus your energy on the second largest debt. By diverting the money that was going to the now paid off debt, towards remaining debt, you can slowly increase the speed with which the debt is being eliminated. The feeling of paying off debt is empowering and motivates you to fight the often felt despair of large debt loads.
Increase Your Income
One way to tilt the scales of financial independence in your favor is to increase your income while keeping your expenses unchanged. Increased income can come from a side hustle, a passion project, or your regular job.
I like examples, so let me give you an example from my job.
Emergency Room Nurse has been my day (and night) job for the last 17 years, gawwdddd! that sounds like a long time. As an RN, you can sit for a rather rigorous exam to become a Certified Emergency Nurse. It is common for certification to come with a slight pay increase. My employer pays $1 per hour extra to any nurse willing to put in the months of studying it takes to pass the exam.
While I don’t know the exact numbers, over half of the nurses I work with do not even attempt to earn this extra dollar per hour. They let the fear of not passing the test stop them dead in their tracks.
To make matters worse my employer will not only pay for the exam(approx $350) but cover the cost of all study materials. There is not one single reason why every nurse I work with should not be earning $1 extra per hour.
For a full-time nurse, this could be an extra $2,080 dollars to start an emergency fund, pay down debt or start a Roth IRA.
Enjoy Life More With Less
Every year our extended family and all of the nieces and nephews have a family camping trip. This past weekend we were sitting around the fire and my sister noticed that my jeans were a bit out of fashion. Damn right, they were a pair of Old Navy cargo jeans from high school and they would suit me just fine for a camping trip.
After the laughter settled down, I went on to tell my family how I have one pair of designer jeans that I bought at Good Will for $14.
The things you own will start to own you
I have two pairs of running shorts, a few t-shirts, two hoodies and a minimal amount of other necessities like underwear and socks. I derive no value from shopping for clothes. This leads to a pretty bare closet and extra money to put to work somewhere else.
The temporary pleasure of purchasing things is often replaced with the responsibility of caring, cleaning and storing your treasures. What if having less actually left you feeling happier.
Building a bigger gap between what you earn and what you spend is a sure fire way to financial independence. For the last three years, I have banked every pay raise and every bonus. I have not felt deprived or like I was doing without.
When you save your raises you are forcing your self to live on the same income while increasing your savings. It is hard to cut expenses and live on less but not so when you only save your raises.
By saving our raises over the last three years, our family has doubled our savings rate without feeling deprived.
July to FI
This July 4th, while you are eating your barbequed hamburger and lighting off fireworks, it is unlikely you will be thinking about your finances. That is why I declare the whole month of July as an FI holiday.
Use the month of July to declare financial independence from debt, stress and the burden of spending all that you earn. With five easy FI steps, you could start moving toward an easier life and a better future.
The steps to FI are easy, the execution is hard.
Thank you for reading. What are you doing in July to make progress down your path to Fi?