This week, we celebrate Independence Day with fireworks, sparklers, picnics and parades. Amidst the hoopla, though, it’s always important to reflect on the many freedoms we enjoy in this country. And as an individual, you may want to use the occasion to think of another type of independence you’d like to enjoy—financial independence.
In some ways, we are living in a time when attaining financial freedom is more difficult than it has been for quite a while. We’re still recovering from the bursting of the housing bubble and the lingering effects of the Great Recession. Furthermore, wage stagnation is a real problem. In fact, median income for working-age households - those headed by someone under age 65 - actually slid 12.4 percent from 2000 to 2011. Taken together, these factors certainly impose challenges on anyone seeking to become financially independent and eventually enjoy a comfortable retirement.
Still, you need to do everything you can to put yourself on the path to financial independence. For starters, make full use of whatever resources are available to you. If you have a 401(k) or similar retirement plan at work, try to contribute as much as you can possibly afford - and every time you get a raise in salary, increase your contributions. At the very least, put in enough to earn your employer’s matching contribution, if one is offered. Also, within your 401(k) or similar plan, choose an investment mix that offers you the chance to achieve the growth you will need to make progress toward the type of retirement lifestyle you’ve envisioned.
In addition to contributing to your 401(k), you can also take advantage of another retirement account: a traditional or Roth IRA. Like a 401(k), a traditional IRA grows tax deferred, while a Roth IRA can grow tax free, provided you meet certain conditions. Plus, you can fund your IRA with virtually any type of investment, including stocks, bonds, certificates of deposit and Treasury securities.