Fireworks

Declare Your Financial Independence This 4th of July

This week, Americans will celebrate the 242nd Anniversary of the day our founding fathers declared the country's independence. Why not make this the year you declare your own independence—your financial independence?

Here are five actions you can take this 4th of July week and over the months ahead to secure yourself a stronger financial future.

Why not make this the year
you declare your own
independence—your financial
independence?

1. Pay Down Your Debt

If you want to truly gain financial independence, you'll need to work on freeing yourself from debt.

The first step toward getting rid of debt is to get a handle on your income and expenses, how much you owe and how much you are paying in interest. This will help you discover areas where you can cut back on spending without feeling too much pain and help you prioritize which debt you'll want to pay down first (hint: the answer is usually high-interest debt).

When you have an idea where you can cut back and how much you are paying in interest on your debt, it's time to get specific and develop a strategy. It's tough to stick to a goal when it is something vague, like "pay down my debt." Instead, figure out something specific you can target, such as, "pay off at least $250 of my debt every month this year." Then set up an automatic payment to make it happen.

2. Bolster Your Emergency Fund

If you want to master your financial independence, you will need a way to deal with unplanned expenses. One way to accomplish this is to put money aside in a savings account at a bank or credit union expressly for emergencies. It's important to set aside some money—about the equivalent of three to six months of living expenses—to help get you through some of life's inevitable financial surprises.

If something unexpected happens to you, having the money you need to pay medical bills or see you through the weeks or months of being out of work will help keep you from taking out high-interest debt. If you already have investments, an emergency fund will also help you meet your expenses without disrupting your investment plan.

This Independence Day, set a summer savings goal (say $500)—enough to cushion you against at least some of these unplanned expenses. Need help getting started? Check out these tips.

3. Understand Your Investments

Many investors know very little about their investments. For instance, among investors who own target date funds, a study sponsored by the Securities and Exchange Commission found that only 48 percent of respondents were aware that target date funds don't provide guaranteed income after retirement.

Each broad type of investment—from bank products to stocks and bonds—has its own set of features, risk factors and ways it can be used to help you reach your financial goals. To really get to know your investments, start with an overview of each type of investment you own, and then drill down to information about your specific investments.

If you are looking to brush up on your investments, be sure to check out FINRA's Market Data Center, which has a wealth of free information on stocks, options, bonds and mutual funds, including performance history and prospectuses. If you had help from a financial professional in selecting your investments, don't hesitate to ask for a walkthrough of each investment you don't fully understand.

4. Take Advantage of Free Financial Tools

Whether you're just starting to save or well on your way to a secure financial future, financial tools and calculators can help you set and reach your financial goals. They can also be a reality check on how much you might need to be saving now so you don't have to play catch up later.

For example, if you're thinking about investing in mutual funds or exchange-traded funds, try FINRA's Fund Analyzer to analyze the impact of fees on your investments. Or, check out any number of other free tools on FINRA's website.

Thinking about retirement? You can start planning now by using the Social Security Administration's Life Expectancy Calculator to help determine how many years of retirement you might need to plan and save for. Then, you can try one or more retirement calculators to estimate how much you'll need to save to meet your likely expenses.

5. Check Your Credit

This one is easy and can be done in a few minutes. Everyone should check their credit report—including those who are confident that they have good credit—at least once a year. Regular credit checks can help ensure that the information on your report stays accurate and that you can catch any potential problems early. You can access your free credit report by going to www.annualcreditreport.com or calling (877) 322-8228.

Related: How Much Do You Know About Your Credit Score?

You can—and should—also get your credit score (for which there may be a charge), but many banks and credit unions now offer free credit scores to their customers. At its most basic, your credit score—a number typically ranging from 300 to 850 and mathematically derived from your credit history—is used to predict how likely you are to pay back a loan on time, and can determine how much interest you pay on your debts. Good credit management leads to higher credit scores, which in turn lowers your cost to borrow money.

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