The Seacoast Bank Note

How To Gain Financial Freedom

Become Financially Independent By 40

If you’re one of the 67% of Americans who share the goal of financial independence, you know the importance of your financial health. Unfortunately, 70% of Americans feel financially stressed instead, which can complicate your journey to financial freedom. You may be wondering at what age you should be financially independent. That depends on your situation and when you start saving. And, though you’ll have to make some sacrifices, it’s possible to become financially independent by age 40 by creating a plan and sticking to it, starting with defining your financial goals.

Define Your Goals

What is financial freedom? Financial freedom might have a different meaning than it does for your friend or neighbor. For some people, having enough money to pay their monthly bills might feel like financial freedom. Others, however, might define financial freedom as the flexibility to stop working permanently but continue living their current lifestyle.

Before you start saving, defining what it means to be financially independent is helpful. Without well-defined financial goals, knowing what you’re working toward and when you’ve reached your goal is challenging. Financial freedom can also consist of multiple financial goals, like saving a certain amount for retirement or paying off a mortgage. Once you determine your specific goals, set a deadline for yourself and figure out how to hit each financial milestone by its deadline. While there are countless paths to financial freedom, each starts by focusing primarily on eliminating debt, budgeting and building savings.

Reduce or Eliminate Debt

Young woman budgeting on tablet

Debt—particularly high-interest debt—can hold you back financially. Credit card interest rates can be as high as 25% or more, so if you have credit card debt, you may want to prioritize paying it down as quickly as possible.

Here’s an example of why paying off debt can pay off in the long run: You have $5,000, and you’re not sure whether to pay down the interest on your student loan debt or invest in stocks. If you earn an average of 7% per year in the stock market, you’ll have $5,350 after the first year. Now, say the interest rate on your loan is 10%. If you use the $5,000 to pay down the loan, you’ll save $500 on interest charges in the first year, yielding a better overall result than if you were to invest the money.

  • Scenario 1 (Investing in the stock market): 5,000 x 0.07 (The 7% hypothetical return) = $350 in earnings
  • Scenario 2 (Paying off debt): 5,000 x 0.10 (The 10% interest rate) = $500 in savings

With these four simple steps, you can reduce debt, create a budget that allows you to save more of your income, and take one step closer to financial freedom.

Create a Household Budget

Your budget is the backbone of your financial well-being. Budgeting gives you greater control over your finances, empowering you to understand your finances, plan for the future and save enough to meet your goals. Creating a personal budget can help you calculate how much you need to spend on necessities, how much you can spend on the things you want and how much you need to save. A budget can take the thinking out of spending and saving, making it one of the best tools to keep you on track to reach your short-term and long-term financial goals.

What is the 50/30/20 rule?

The 50/30/20 rule is one of the most popular budgeting strategies, and for good reason. It’s simple, straightforward and easy to follow. The 50/30/20 rule divides your income into three parts: your necessities, discretionary spending and savings.

  • 50: Your necessities, which account for 50% of your income, cover your basic needs, like housing expenses, groceries, transportation and insurance.
  • 30: You can spend up to 30% of your post-tax income on discretionary spending (the things you want).
  • 20: The final 20% of your income should be dedicated to saving for retirement and emergencies, investing and paying off debt.


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Understand Your Savings Options

To reach your financial goals by 40, you need to save enough money to sustain any financial emergencies or unforeseen expenses. You should also save for other goals like buying a home or car, investing and ultimately, retirement. For each of your savings goals, you should have a separate account.

Understanding your savings options can help you choose the right account type for each goal. For example, you want your emergency fund to be somewhere easily accessible, like a savings account, money market account or CD (certificate of deposit). Money market accounts and CDs can be two great savings account options to consider if you’re looking to potentially earn higher returns than a traditional savings account and want greater flexibility.

For longer-term savings goals, an individual retirement account (IRA) offers tax advantages for your retirement savings but isn’t easily accessible and may include fees or penalties for early withdrawals.

When choosing where to save money, explore your options, consider when you might need it, and consider any account features that could help you reach your goals faster.

Plan for Retirement

Though it might be hard to imagine retiring now, it’s never too soon to start saving, especially if you’re considering retiring early. You might not know exactly when you want to retire, but it’s important to have a general idea of when you want to quit your career. Whatever you decide, you’ll want to create a plan to help you reach your retirement goals on time and with enough money to continue living comfortably.

What is the FIRE movement?

Dad holding kids on a beachToday, some people align their financial goals with the FIRE movement. FIRE is an acronym that stands for Financial Independence, Retire Early. Those who subscribe to the principles of FIRE focus on saving aggressively so they can retire early. Though the FIRE movement can provide the structure some people need to succeed, it may be irrelevant or unrealistic for others. Even if you don’t adhere to the FIRE movement, you can still achieve major financial milestones (and enjoy living in the present) with other strategies, like the 50/30/20 rule.

Additional Steps to Accelerate Your Path to Financial Freedom

If you want to accelerate your path to financial freedom, here are four additional tips to help you become financially independent faster.

1. Curb Your Spending

While budgets like the 50/30/20 rule earmark most of your post-tax income for needs and wants, you can attain financial independence even sooner if you spend less. Reducing your expenses — spending less on housing or skipping the weekly sushi special — can create new opportunities to boost your savings. Living within your means is excellent; living below your means is even better.

2. Supplement Savings With a Side Hustle

Female Shop Owner Celebrating Financial FreedomCurbing your spending is one way to help you increase your savings, but if you’re looking for additional ways to supplement savings or can’t get by spending any less, think about starting a side hustle. A side hustle can bring in extra income, from dog walking and deliveries to web development and washing cars. The money you earn from your side hustle can help you establish an emergency fund or contribute toward other savings and investment goals, like college, retirement or buying a home.

3. Know Your Net Worth

Knowing your net worth can help you understand how far you’ve come and where you need to go. To calculate your net worth, subtract your liabilities (money you owe) from your assets (things you own, like cash and stocks). The remaining amount is your net worth. Life is full of good and bad surprises, and your financial situation can be, too. When you know your net worth, you know what you need to do to reach your financial goals and can make intelligent, strategic choices to help you get there.

4. Don’t Forget to Diversify

Diversifying your investment portfolio is one of the keys to securing your financial future. Diversification refers to how you allocate the assets in your investment portfolio. A well-diversified investment portfolio will have a healthy balance of stocks, bonds and cash, reducing risk exposure. Since every investor has a different time horizon and risk tolerance, you should diversify your portfolio to minimize risk while continuing to focus on meeting your needs and priorities. If you’re unsure where to start, a financial advisor can help you understand your options and make informed financial decisions.

Set Up Your Checking and Savings To Get Started Today

There’s no magic formula for attaining financial freedom, but with a thoughtful plan, the proper budget and a disciplined approach to savings, you can achieve financial independence by age 40. At Seacoast, we’re here to help you reach your financial goals however you define them. Set up your checking and savings accounts to start today, and take the first step toward a successful, financially independent future.


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