We hold this truth to be self-evident: That most Americans probably feel somewhat pressured by their financial practices, and yearn for greater freedom when it comes to matters economic.
As we celebrate our country’s freedom this week, it’s a great time to circle back for some pointers from Mint.com columnist Matthew Amster-Burton for four quick tips on how to declare your own independence from financial entanglements.
Here are four tips, none of which involve throwing a bunch of tea into the harbor.
Live Frugally or Die
Borrowing from the New Hampshire state motto, Live Free or Die, is overstating it a bit. But it reflects Amster-Burton’s first step: Find ways to live below your means, so that financial frugality becomes part of your life.
“The best way to achieve financial freedom is to live well below your means, and to do it in a way that doesn’t require constant feats of willpower,” Amster-Burton says.
In a previous post on the topic at Mint.com Amster-Burton outlines some ways to live below your means, such as driving an older car or living in a house that isn’t a mansion. Doing so can give you more freedom by letting you hang on to more of your income, he notes.
Declare War on Credit Cards
A second step toward greater financial freedom is to avoid credit card debt, something Amster-Burton calls “an obvious obstacle.”
In an interview with author Zac Bissonnette (who wrote Debt-Free U and How to Be Richer, Smarter and Better-Looking Than Your Parents) Amster-Burton dispels some of the myths of “improving your credit.” Accumulating credit cards can hurt, paying off your balance every month doesn’t translate to “free money,” and gaining rewards for purchases often isn’t worth it.
The bottom line: Credit cards are a business run by people who know the financial game better than you – and they are not in it to make your life easier. Bissonnette’s advice: “I think most people would be better off trying to limit their interactions with the financial services industry rather than trying to make a game out of trying to beat them.”
A third step is starting a Roth IRA. “Contributing to a retirement account is essential for achieving financial freedom,” says Amster-Burton, who spells out all the details and benefits of a Roth IRA in this post at Mint.com.
Here’s a quick snippet of Amster-Burton’s excellent explanation of the Roth:
“The Roth IRA, despite its impenetrable name, is the simplest retirement savings account in America. To recap how it works: you contribute after-tax money to the Roth IRA, up to $5,000 a year, and the money grows tax-free and can be withdrawn tax-free in retirement. When I say ‘after-tax’ money, I just mean you don’t get an immediate tax break for contributing to the Roth IRA; you get it later, in retirement.
Let Lattes Ring (up)
Finally, Amster-Burton suggests that simply relying on willpower – that great trait that we all probably think we have more of than we do – isn’t the best way to guarantee financial discipline. Instead, some simple steps, such as automatic deductions from paychecks, can go a lot farther than, say, a plan to cut out lattes.
“Successful savings strategies can’t require massive expenditures of willpower, because humans don’t have massive reserves of willpower,” Amster-Burton says in another blog post at Mint.com.
“Trying to give up lattes is about the worst possible way to embark on a new savings regime, because lattes are tasty and available everywhere and hard to resist. When you set aside savings from every paycheck, however, it has a way of making your spending priorities clear. If lattes turn out to be high on the list, who cares?”