A recent Federal Reserve survey revealed that nearly half of Americans would have trouble finding $400 to pay for an emergency, such as a car repair or medical bills. Many Americans juggle creditors and other financial obligations week to week and often feel stuck in jobs they don’t enjoy. Individuals of all income levels can find themselves in this situation, an indication that this problem cannot be solved simply by earning more money.
Brenda Forde is the Accounting Program Chair at the Forbes School of Business & Technology™ at Ashford University. Brenda recently developed an online personal financial management boot camp course for individuals who want to position themselves on the path to becoming financially independent. In this self-paced course, she shows how it is possible for anyone to become financially independent within their lifetime.
Ken Kam: How can people prepare themselves for a financial emergency?
Brenda Forde: First thing I would suggest is to establish an emergency fund. You would be surprised at how quickly you can build a $400 emergency fund with some small changes. Here are 3 relatively painless ways to get started:
- Dedicate your next raise. If you never got used to the extra income, you won’t miss it when it’s going directly to your emergency fund.
- Cut the cord. More and more people are cutting their monthly cable and landline telephone bills. Even just telling your providers you are considering cancelling can get you a big discount which you can deposit right into your emergency fund.
- Make your own coffee. A good cup of coffee does not have to cost $5. Learn to be your own barista and contribute the savings towards your emergency fund instead of Starbucks.
Once you’ve put $400 into your emergency fund, you will be in a better financial situation than nearly half of Americans surveyed by the Federal Reserve.
But don’t stop at $400. Keep growing your emergency fund until you have accumulated 3-6 months of expenses and you will never have to stay in a job you don’t like ever again. That’s how you’ll know you’re on the road to financial independence.
Kam: Why is it so difficult for most people to become financially independent?
Forde: I think there are many reasons for people not becoming financially independent. For some individuals they may not think of financial independence as a priority or something they need to do but rather something that will just happen on its own. Financial independence requires purposeful action and some hard work.
Some individuals are aware of the importance of financial independence and do think about it, but simply do not know what to do. They receive bits of information from the news or the internet but are not sure how to put it together. They may feel overwhelmed by the process.
Finally there are some people who are purposeful and are taking steps to become financial independent but may be going about it the wrong way.
Kam: My suspicion is that many people believe the only way they will ever become wealthy is if they win the lottery. What role does luck play in becoming financially independent?
Forde: Well, we would never shun luck, but building financial independence takes a lot more than luck and we would not want to gamble on the hope that we are lucky. Most opportunities in life have less to do with luck and more to do with hard work and proper positioning. This goes for building wealth as well as careers.
Kam: If people use the tools you’ve provided in your boot camp course, how confident are you that they can become financially independent?
Forde: I am very confident that individuals who follow the process and use the tools in the boot camp will build their wealth. The chances of this happening are particularly great for those who start the process sooner rather than later.
While there are various paths and investment opportunities to building wealth, the overall steps are quite similar.
Individuals need to first understand their financial situation with a solid balance sheet and income statement. It is also critical to set smart goals and take steps to make those goals a reality.
Kam: How does a person’s age impact ways to build wealth?
Forde: The younger you are, the more time you have for the miracle of compound interest to works its magic for you. In addition, when you are young and have fewer responsibilities you can take more risk both with your career and with your investments.
However, I don’t want to make it sound as if only young people can build financial independence. Financial independence strategies can begin at any age.
My Take: Establishing an emergency fund and putting yourself on the path to financial independence can change the direction of your life and you will find that journey can be just as rewarding as the destination.
As you make progress toward your financial goals, you will have more and more control of your life and you will impart positive financial habits to your children that will put them on the road to their own financial independence one day.
Financial independence does not happen overnight. But, I agree with Brenda that it is possible for everyone to achieve financial independence within their lifetime even if they never win the lottery. If you are ready to take control of your financial life, Brenda’s Personal Financial Management Bootcamp is a great way to start.
I believe people should have to prove themselves before they can manage other people’s money and the best evidence of investment skill is a track record. For more information contact me.