It’s no secret I have a passion for personal financial planning.
I’ve grown accustomed to the startled looks I receive from friends and family members when I tell them $1,200 a month goes towards paying back my student loans.
“You took out THAT MUCH in loans?” they ask.
“There has to be a way to lower your interest rate so you don’t have to pay that much” they advise.
Their faces turn from startled to just plain shocked when I inform them I pay that amount by choice – the required payment is closer to $400 a month.
So why would I subject myself to living off less than 40% of my monthly income?
Well, the reason is because I made a promise to myself back in college that I would be financially independent by age 25.
I made a commitment to be completely out of debt (this includes having a car paid off, being rid of all student loan debt and not accumulating any credit card debt). I promised to have an 8 month emergency fund (this would cover all fixed expenses and a reasonable amount of variable expenses). I would set up a retirement account and make monthly contributions (at least as much as I could afford). I need to learn appropriate use of parentheses (how many is too many?).
I made this decision at the age of 20 and, by the time I graduated from college at age 21, I was not even kind of close.
However, I am now 23 and can say with a joyful heart that I am well on my way to reaching my goal of complete financial independence in two years.
8 reasons to choose freedom in personal finance:
1. Debt is bondage we were never meant to be weighed down by.
Proverbs 22:7 tells us “The borrower is servant to the lender.” I truly believe The Lord never meant for us to live in debt. Breaking free from bondage is mentioned 7 times in the NIV Bible. Financial debt is mentioned in 10 verses.
Every time debt is mentioned (shockingly), it is referenced in the same context as bondage. Financial independence means I can easily give 10% (or more) back to The Lord with every paycheck. Financial independence means, when faced with an opportunity to show Christ’s love to someone in need, I never have to stop and question whether I can truly afford to be charitable. Financial independence means I am free to serve Him fully without the hindering weight of debt.
2. See yourself as an adult.
Honestly, the biggest reason I feel like I’m finally past the “kid” stage and into the “adult” world is the fact that I never have to ask my parents for financial help. They are generous enough to bless me with financial gifts from time to time (and I’d be lying if I said I didn’t accept them gratefully), but I have not asked my parents for money since I graduated from high school.
When rent is due, I can write a check myself. When it’s time to go grocery shopping, I can hand over my own debit card. When Christmas rolls around, I can buy my family nice presents without first having to stop by my parents’ house (and pretend they don’t know they just bought their own gift). I’m not going to lie to you – being independent feels pretty damn good.
3. Never be desperate for a job.
I truly believe that people are attracted to confidence and repelled by desperation. I don’t care if it’s in a friendship, romantic relationship, business environment or walking up to a stranger and asking for directions. Human beings are attracted to fearlessness. Financial independence gives me the freedom to walk into every interview with such boldness. I know that I do not NEED a job. Eventually, yes, I will need a form of income But if a job doesn’t feel right or the interviewer is sketchy or I don’t like the lighting in the office, I never have to feel afraid to turn down the job offer. I never have to depend on the outcome of one job interview as the difference between eating that week or paying rent the next.
In my opinion, this security in my finances translates into confidence in myself. Since graduating college, I have walked into every job interview with courage. The result? I have been offered the position in all but two cases – and I had the freedom to turn down every offer that I did not feel would be a good fit. Financial independence gave me the freedom to be in control of my career. I have never gone into an interview begging for a job, and I believe this made the difference between me and every other candidate.
4. Never feel trapped in a job.
Sometimes, certain jobs just don’t work out. Management structures change, benefits change, demands of the job change. Sometimes nothing about the job changes, but we out-grow current positions or feel it’s time to move on. I never wanted to be trapped in a position because I needed the paycheck. I never wanted to feel forced into working for a company I no longer believed in or working for a boss I no longer respected for fear of not being able to make rent.
By saving up an 8 month emergency fund and being completely in control of my expenses, I had the freedom to walk away from a job I no longer felt suited for in order to follow my true passion. If it weren’t for the fact that I knew I could easily afford at least 8 months without any income at all, I would still be working at a job I had grown to despise. Financial independence translated into true independence.
5. Never feel guilty on splurge days.
Some days, you just want to let loose. An old friend comes into town and you want to go out for a nice dinner and drinks to catch up. The designer handbag you had been eyeing for over a year suddenly goes on a 1 day only, 70% off sale. You break up with your boyfriend of 4 years and compensate by eating your weight in ice cream, dying your hair a completely different color and buying a new wardrobe.
Sometimes, life happens. Because I am financially independent, these occasional splurges never lead to guilt, shame or regret. No, I don’t recommend going out and spending 50% of your savings on one impulse purchase. However, spending $75 on a long-awaited girls’ night feels a lot more forgivable when I know there is enough in my slush fund to allow for such an occurrence.
6. You don’t have to work until the day you die.
One of the worst effects of the “Great Recession” is the millions lost in pensions and retirement funds. Those who had never begun saving for retirement were suddenly faced with the fact that they cannot enjoy retirement with their friends. A recent study by PEW Charitable Trusts finds that “Gen-Xers” (those born between 1966 and 1975) were especially hit, on average losing 45% of their net worth – or about $33,000. The reason this is especially detrimental is because most had so little saved to begin with.
Call me an idealist, but I want to actually enjoy my golden years. I want to play shuffleboard on a Carribbean cruise ship. I want to soak in a Jacuzzi in Florida. I want to drive an RV across the country. My point is, I don’t want to be the person forced to work until the day I die. Even more so, I don’t want to be working until I’m too sick to continue, suddenly putting myself (or a family member) into debt having to pay for long-term care in my last years. For my future self and my future family, I choose to be financially independent.
7. Never let one emergency dictate the rest of your life.
As Suze Orman has said, “A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” The truth is, we don’t know what tomorrow will bring. However, I do know that I am covered in the case of an emergency situation that keeps me from working for a long period of time.
I know I’m properly insured in case I’m in an accident and suddenly faced with hospital bills. I know that I would still be financially stable if I ever suddenly lost my job. I know that, should anything ever happen to a member of my family, I would be financially secure enough to forgo earning an income for a few months in order to take care of them. Financial independence translates into peace of mind about the what-ifs. Whatever the future holds, I can be free from worry. I know I’m secure.
8. It’s better to be comfortable than rich.
This might apply only to myself, but I’ve never wanted to be rich. Yes, I’ve dreamed of winning the lottery and having an endless income with which I could feed the world’s hungry and clothe the world’s poor and eliminate debt for all members of my family. But realistically, I only see an excess of money as the potential for more problems than solutions. I’m perfectly content with comfortable. I would like just enough to cover my expenses – and then some.
Enough that I know I’m covered for all the what-ifs in life, with a little left over for the occasional splurge. I don’t want a mansion (what a pain that would be to clean) and I don’t want a fancy car (I have enough trouble not getting pulled over in my beat-up Explorer). Financial independence means I have the luxury of never having to worry about my finances and I am free from the burdens of the upper class. As Proverbs 30:8 says, “give me neither poverty nor riches, but give me only my daily bread.”
Financial independence isn’t for everyone. I had a lot of work to do on myself before I came to a place where financial stability was even an option. It’s not always easy – I’ve had to pass up more than one night out with my friends because I couldn’t justify the splurge. However, the chance to live without the weight of debt and bondage makes all the difference.
So what is your financial strategy? Leave a comment below letting me know your financial goals and your reasons to save rather than spend.
Photo Credit: 401(k) 2012
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Edit: Check out the series inspired by this post!
8 Ways to Avoid Financial Crisis and Find Stability
Part 1: Save your money and spend less
Part 2: Get out of debt and safely spend
Part 3: Independence in Any Circumstance
Part 4: Focus on Giving, Not Earning