5 Tips to Become Financially Independent in 2024 - Experian (2024)

1. Understand Your Situation

The process of working toward financial independence will look different for each individual and family, so it's important to get a good idea of where you stand and what you have to work with.

Before you start making plans to improve your financial situation, here are some things to take stock of:

• Your income: Detail all of your sources of income, such as your primary job, additional employment, side hustles and investment income. If a portion of your income is variable, estimate how much you expect to earn based on the past several months and future plans.
• Your expenses: Review your expenses over the past few months to get an idea of how much you spend each month. Then, categorize your expenses to get more details about where your money is going and which areas you can cut back, if needed, to progress toward your goal.
• Your credit score: Having good credit can make it easier to qualify not only for low interest rates on loans but also for better rates for car and homeowners insurance, higher-value credit cards and more. If necessary, taking steps to improve your credit can make it easier to achieve financial independence. You can check your credit score for free with Experian.
• Your debts: List out all of your debts, including balances, interest rates and monthly payments. Reaching financial independence may not require you to pay off all of your debt, but you'll want to prioritize eliminating the more expensive ones.
• Your assets: Make a list of your investment account balances, including retirement, as well as other assets that can help you reach your goal. You can even calculate your net worth using your total assets and debts to get an idea of how close you are.

2. Live Below Your Means

Once you have a good picture of your overall financial situation, the next step is to create a budget. Living below or within your means involves spending less than you earn each month, and living on a budget improves your ability to do that.

With a budget in place, you can set spending goals for yourself and also make room for important financial goals, such as building your emergency fund, paying off high-interest debt and investing for the future.

Of course, your budget won't necessarily be the same each month, and external factors, such as income changes, irregular expenses and financial emergencies, can make it difficult to meet your spending goals consistently. But over time, making adjustments to your budget can make it easier to adapt.

3. Reduce High-Interest Debt

If you have credit card balances or other high-interest debt, the associated costs can impede your ability to make meaningful progress toward your financial goals. Depending on your credit score and your preferred way to tackle your debt, options may include:

• Debt consolidation: This process involves using a personal debt consolidation loan or a balance transfer credit card to pay off one or more high-interest balances, preferably at a lower interest rate or with a 0% APR promotion. You generally need a good credit score to make debt consolidation worth it.
• Accelerated payment strategies: The debt snowball and debt avalanche methods both make it possible to pay off your debt more quickly by targeting your lowest balance or most expensive debt first, and then building your payments over time. This option is worth considering if you have multiple high-interest debts you want to pay off.
• Debt management plan: If you're overwhelmed by your debt, consider consulting with a credit counselor to get some personalized guidance. If your situation is dire, they may even recommend a debt management plan, which combines your monthly payments and can help reduce your interest rates and payment amounts.

4. Improve Your Credit Score

You don't need a perfect credit score to become financially independent, but having great credit will help you minimize interest charges on loans, qualify for the best insurance rates and earn better rewards with the best credit cards.

In addition to checking your credit score, it's a good idea to also review your credit report to understand which factors are impacting your score. This information can also help you determine which steps you can take to increase your credit score. Potential options include:

• Paying down large credit card balances
• Getting caught up on past-due payments
• Asking a loved one to add you as an authorized user on their credit card account
• Getting credit for other monthly bills, such as rent, utility and phone payments, through Experian Boost^®ø
• Applying for credit only when you need it
• Paying off your credit cards in full each month

With Experian's free credit monitoring service, you can easily track your progress, and also learn about new developments with real-time alerts when changes are made to your credit report.

5. Invest in Your Future

There's no single best way to invest for the future, so it's important to develop an investment strategy based on your situation and objectives.

One good place to start, however, is with an employer-sponsored retirement plan, such as a 401(k). If your employer matches your contributions up to a certain point, saving enough each month to get the full match essentially gives you an immediate 100% return on your investment.

You can also consider other investment options, such as an individual retirement account, a brokerage account and real estate investing, to help create the future you want.

Be Realistic About Your Goals and Reassess Regularly

Financial independence looks different for different people, but it's crucial to be realistic about what's possible for you based on your financial situation. While it may not hurt to dream big, working toward an impractical goal can cause you to get discouraged and lose motivation. If you're struggling to come up with a realistic plan, consider enlisting the help of a financial advisor.

Once you get started with your plan toward financial independence, plan to reevaluate your approach at least once a year. Your income, your interests and other variables will likely change over time, so regular reassessments can help you make adjustments to your strategy to ensure your goals remain relevant.