Five Essential Steps to Financial Independence

It's never a bad time to consider life, liberty and the pursuit of happiness but Independence Day offers us a special opportunity. For me, those concepts also have a great deal to do with financial independence. After all, the ability to take care of yourself and your loved ones throughout life is a great source of happiness and a way to avoid stress and worry. And never forget that greater financial freedom isn't just good news for you – financially healthy households make us all stronger as a country.

So make a financial declaration of independence that you can celebrate year round. I've boiled it down to five essential steps:

1. Plan. The only way to build a strong financial future is to live below your means, essentially to spend less than you make. The earlier you can commit to that behavior and divert funds to regular savings and investing, you'll be in better financial shape for a lifetime. Budgeting – the process of tracking income, subtracting expenses and directing the difference to essential financial goals is the way you'll afford retirement, college for your children and a range of other financial goals.

2. Protect. Why focus on protecting your money, even before you have much of it? Because protecting your money early on will keep new money where it can grow. The first task involves building an emergency fund that will hold three to six months of reserves to cover everyday expenses if you lose your job or have to shoulder a major expense or repair. An emergency fund will help keep you from having to borrow in such a situation. The next step is insurance. Whether you purchased a home or you are renting a property, think about everything you own. How much would it cost to replace clothing, furniture, appliances and electronics? Did you also know that renter's insurance offers liability coverage of medical or legal expenses connected to your home? Your landlord's coverage is unlikely to cover any personal liability you incur in a structural emergency or accident and certainly won't cover you in case of theft. It's also important to buy quality auto, home, health, and when relevant to your circumstances, disability and life coverage. Insurance is about preventing a range of financial setbacks.

3. Learn. While you're building your emergency fund, become a voracious reader and listener on financial topics. If you have the time and resources, take classes on the three major financial behaviors – saving, spending and investing. Consider working with a qualified financial or tax expert to determine if what you're learning is right for your situation. Whether it's a house, a car, a continuation of your education or a family, start linking this knowledge with accomplishing actual financial goals.

4. Manage. Evaluate assets for growth and income – stocks, real estate and other assets may fluctuate in value over time, but if they're producing dividends or income, that's a worthy counterbalance to market variations. Keep studying various asset classes of investments so you can build and adjust your portfolio as needed over time. Also, don't forget to study the tax ramifications of any investment you make – taxes are some of the most expensive costs we pay. However you choose to save, invest or spend, do so with the least cost possible. In life, small amounts add up – investment fees, shipping fees for goods you order online, even the extra bag you pay to check at the airport. Always question and try to avoid paying the "small" amounts that leave your wallet because they will add up over time.

5. Evaluate. Our lives don't stand still and neither should your financial planning. Any time major events happen in your life – a new job, marriage, a baby, the death of spouse or partner – financial circumstances change. Always be ready to reevaluate your current savings, spending and investing behavior based on what's going on with your life.

One last item to consider when thinking about financial independence is giving. We still live in a country where many people struggle to find good jobs, raise families and afford homes. Realize that there should be a part of your budget that goes toward helping the less fortunate. GuideStar (http://www.guidestar.org), Charity Navigator (http://www.charitynavigator.org/), the Better Business Bureau (http://www.give.org) or the Foundation Center (http://foundationcenter.org) all offer detailed research on charitable organizations that you use to evaluate before you give.

Bottom line: You don't have to be wealthy to become financially independent. Be diligent with smart spending, detailed research and always prepare for emergencies. Soon, you'll be celebrating your own financial Independence Day.