How can an individual achieve financial independence, while also keeping their finances simple?
This is the question to be explored in this article.
This is debt-related. If an individual has a bunch of outstanding debts, there are a few ways to go about eliminating them. The first option is to simply pay them off. Now, there are two schools of thoughts regarding this topic. Namely, should you pay off the debt with the highest interest rate or the one with the lowest balance? In practice, either one works, but an individual might be able to achieve financial independence quicker if they were to pay off the highest interest rate debt first.
Here's how it could work: pay the minimum of each of the debts. Anything extra goes towards the outstanding account you will eliminate first. For example, if an individual has an extra $50 or more at the end of the month, then they could put that towards the particular debt they wish to eliminate first. Although, if the individual in question has no extra money to throw at the debts each month, ideally they should just do the best they can.
There is one other route worth examining: Debt/Liability Consolidation. There are a few different varieties of debt consolidation, but in essence, it's another loan that takes care of all your debts at once. For example, let's say an individual takes out a $25,000 consolidation loan. They would have to pay a 1% to 5% fee depending on what type of consolidation loan it is. Either they have to come up with the money up front, or it gets rolled into the loan itself. So if the individual in question needs a consolidation loan totaling $25,000 they would need something that is worth more than the loans they are trying to consolidate.
For simplicity's sake, if a person just needs $20,000 in loan consolidation, the higher end fee would be $1,000 (assuming it is 5%). Typically, it goes for a good three years, but a five-year consolidation loan might be possible. The less years, the higher the monthly payment, but it would be less expensive if an individual can handle the higher monthly payment. Credit Karma has a decent loan calculator. I used to recommend Dave Ramsey's, but it seems they try to hide it; Dave wants your information to sell you a course, but you don't need that. All the information out there is free. Here is the link for the Credit Karma's Loan Calculator, if anyone want to play around with it (https://www.creditkarma.com/calculators/loan). To conclude debt consolidation loans, I personally wouldn't recommend one. Reason being, if an individual is able to get one, they most likely do not need one.
A few notes on assets would beneficial here. Briefly defined, assets are things a person owns that have market value, such as a house, car furniture, and investments. As an individual goes through life, their assets will likely become more and more complex. In order to simplify them or keep things simple, an individual should avoid complexity in their assets. For example, having one house, one car (or, one car per driver), just enough furniture to keep an individual happy in their house, etc.
In terms of investments, a balancing act is necessary between diversification and simplicity. On one hand, one would want to have investments spread out, but likely don't wish to spend hours a week managing their finances. If that sounds like fun, be my guest, but I'm assuming most would rather keep things as simple as possible, while also achieving their financial goals.
In today's financial markets, there are number of options for investments. Firstly, index funds offer individuals both diversity and simplicity. If a person doesn't mind having their money in various companies, an index fund might be a good idea. On the other hand, if someone is concerned with where their money is at, then buying individual stocks might be a good option, that way, they know exactly where their money is. It is really quite simple to buy individual stocks from publicly traded companies. They also have high liquidity.
In conclusion, an individual can go to the extreme in terms of simplicity by just having a checking and a savings account. But if someone wants to be more financially stable have income from multiple sources, thereby making them more financially independent, then they have to have a degree of complexity in their financial life. That being said, taking care of the debt side should be the first priority.
This is a blog that is about living a simple Jesus Center life. This blog will be a personal blog of Terence Shane Kruger Jr. and I will be talking about different things on this blog. I will post stuff weekly either on Friday or Saturday every week.