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Work toward your own financial Independence Day

FALLBROOK – Once again, it's time for fireworks, picnics and parades as the nation celebrates Independence Day. Collectively, as people enjoy many liberties, but some freedoms can be elusive – and financial freedom is one of them. What actions can someone take to help themselves to eventually declare their own financial independence?

For starters, they'll want to determine what financial independence means to them. Is it the liberty to meet all their cash flow needs? The freedom to retire comfortably, at the age they choose? The ability to set up the kind of legacy they'd like to leave? If any or all of these things are important, consider the following suggestions:

Seek liberation from oppressive debts.

The cost of living is certainly not cheap, so it's hardly surprising that so many people incur significant debt. Yet, the higher their debt load, the less they'll have available to invest for the future. Debt might be one of the biggest barriers someone faces on the road to financial independence. To avoid piling on too much debt, they must live within their means. Take steps such as saving for a vacation, rather than putting it all on a credit card, and getting just one more year out of that old car. Look for bargains everywhere – and find out what they can live without. And if they have sizable debts, see if it's possible to consolidate them and lower the interest payments.

Break free from chaotic investing.

The financial markets can be unpredictable – but that doesn't mean investment moves have to be chaotic. For example, instead of responding to a sudden plunge in stock prices by selling stocks that still may be fundamentally sound with strong growth potential, an investor might be much better off by holding their ground.

And they'll be in a better position to do nothing during periods of market volatility when they've built an investment portfolio that reflects their goals, time horizon and risk tolerance. With this type of portfolio in place, they'll be in a good position to overlook the day-to-day fluctuations in the market and keep their focus on long-term goals.

Unleash the potential in a retirement plan.

A 401(k) or similar employer-sponsored plan is a great way to save for retirement. Investors can contribute pre-tax dollars, so the more they put in, the lower their taxable income, and their earnings can grow tax deferred. With a Roth 401(k), an investor put in after-tax dollars, but their withdrawals are tax-free, provided it meets certain conditions. But despite these tax advantages, a 401(k)'s full potential won't be realized unless it is funded adequately.

An investor should try to contribute as much as they can afford each year and increase that contributions as their salary goes up. Another way to uncap a 401(k)'s potential is by choosing appropriate investments. A 401(k) likely contains a dozen or more investment options, so they'll want a mix that offers the greatest possibilities for growth within the context of their personal risk tolerance.

Gaining financial independence requires time and commitment. But once someone has achieved this freedom, they'll know it was worth the effort. And who knows? They might even want to wave a sparkler or two to celebrate.

Edward Jones Financial Advisor Brian Schrock is located at 1434 S. Mission Road, Suite B, in Fallbrook. For more information, call (760) 731-3234.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

 

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