July 4th is a special day in America. With bald eagles soaring above and our red, white, and blue flags waving proudly, we puff out our chests, walk a little taller and celebrate our independence by attending parades, cooking out, and filling the nighttime sky with an explosion of colorful pyrotechnics. Our country’s independence from England and the freedoms it represents – freedom of speech, religion, right to vote – and that incredible feeling of self-determination is worthy of celebration. With our shared history and shared value of freedom that we covet so deeply, it is right to enjoy our shared Independence Day.
What about YOUR Independence Day?
Even with the many freedoms we enjoy, most Americans do not enjoy financial independence today. While we celebrate our shared independence, personal financial independence may seem like a pipe dream that is out there somewhere in the murky distant future. We’ll get there, eventually…maybe.
Financial Dependence
Of the 258 million adults in the US, 200 million are in debt, and the average household debt is $105,444 and growing, not counting mortgage debt. If you gathered all the debt Americans lug around today you would find it totals to $18.8 trillion! Trillion, with a “t.”
Let’s let that number sink a bit. I’ll write it out here.
$18,800,000,000,000
That’s a lot of zeroes. We struggle to put that in perspective. Traveling 18,800,000,000 miles would take you outside of our solar system. You could take 101,075 round trips to the sun and back, but at the speed of a commercial jet that would take you 38 years per round trip assuming that you somehow had plenty of gas and used some unknown technology to prevent your plane from melting. You’d be in transit for almost 4 million years. Yep, it’s a staggeringly huge number.
Is that number numbing enough? That’s a lot of debt. Thankfully it is not all yours, but it is statistically likely that you are bearing a share of it. To fit a pretty normal consumer profile today, you have a mortgage, a couple credit cards, and perhaps a car loan or two. Carrying debt does not allow you to live a fully independent financial life. Disagree? Turn off your income and see how long your money lasts. If you have enough to continue to live comfortably for the rest of your life, congratulations you are financially independent! If your picture doesn’t look that rosy, keep reading.
Changing Your Financial Path
Where you stand today is not where you are always going to be. That’s the good news. You have the power to change your circumstances, and in this case that means moving towards gaining your financial independence. The best way to get to financial independence is to pay off your debt. Debt is dependence on someone else to cover your lifestyle expenses.
Eliminating debt significantly reduces risk in your life. If you have a paid for house and lose your job, you have a place to live which provides safety, security, and peace of mind. If you lose your job and have a $2,186 mortgage payment to make every month, any accumulated savings will drain quickly, and anxiety will permeate your family peace. As mentioned above, a typical debt profile today is a household with a mortgage, a couple of credit cards with balances, and a car payment or two. There may also be personal loans or student loans in the mix as well. That just makes the situation uglier if there is a dip in income or a job loss. If that picture produces a tinge of fear in you, you may want to solve for financial independence (and peace!) in your life.
The Path to Peace
There are multiple paths to reach financial independence. One of the most well-used approaches comes out of Ramsey Solutions. Dave Ramsey didn’t invent the debt snowball method, but he has done a good job incorporating it into an approach that is easy to understand and market. He calls it the Ramsey Baby Steps. Following them in order is important because each step has a purpose and is designed to build on the previous steps. While there are other ways to get out of debt, this is an approach I endorse because of a long track record of effective use across generations.
Here are the steps and a brief explanation of why each is important:
1. Save $1,000 for a starter emergency fund
This step creates a buffer between you and the bumps in life as you work to pay off debt. It is just $1,000, but it can prevent new tires, a big electricity bill, unplanned school expenses, or minor emergencies from throwing your plan off track. This amount is intentionally small to insulate you a little but still motivate you to eliminate debt quickly to give yourself a larger cushion later. A smaller amount might not be sufficient, and a large buffer can make you complacent. Do this step as fast as possible.
2. Pay off all non-mortgage debt using the debt snowball
With a small emergency fund as your buffer, stop all savings and investing to focus your income on your debts. The debt snowball method says to organize your debt from the smallest balance to largest regardless of interest rate. Pay the minimum payments on everything and throw all free money at the smallest balance to pay it off first. This approach recognizes that it is behavior that gets us out of debt not just math. Paying off smaller debts first builds encouraging momentum that lets you feel your progress. If you work to pay off a larger balance first because the interest rate is higher, you may lose hope before you get it paid off. The snowball recognizes the positive role emotions play in paying off debt. Your mortgage is not included in this step (we’ll get to it in step six) because it will take longer to pay off and it represents an investment in an appreciating asset.
3. Save a full 3-6 months of expenses in an emergency fund
With all debt paid off – CONGRATULATIONS! – now is the time to build a bigger fund for emergencies. This will keep you from going back into debt when bigger situations like medical bills or replacing your HVAC unit for your house hit. Save up 3-6 months of expenses, not income. You can adjust the amount for your own situation and risk tolerance. Someone with a steady job in a stable industry may decide on a 3-month emergency fund, while someone with a large family, baby on the way, or unpredictable income might decide on 6 months of savings. A good place to stash this is a high-interest savings account so you can access funds quickly if needed.
4. Invest 15% of household income in retirement
With no debt and a fully loaded emergency fund, now is the time to build for retirement. The Ramsey baby steps say to stop all investing until you accomplish the first three steps. The money you may have been putting into retirement is all thrown at the debt in step two. That intense focus allows debt reduction to go faster. It may hurt to know that you are missing out on an employer match (free money!), but this approach looks to reduce your financial risk and free up your biggest wealth-building tool – your income – to give you the best chance of long-term success. If spraying money into savings, debt reduction, investing, and college funding all at once worked, fewer people would be in debt today. This retirement investing may involve a 401(k), a 403(b), an IRA or some combination of those retirement vehicles.
5. Invest in a college fund for your children (if applicable)
It might strike you as selfish or unwise to invest in retirement before funding your kids’ college, but there are two main reasons for this approach. Your options for a good retirement rest solely on your shoulders and there are not a lot of other avenues. Pensions are increasingly rare, Social Security payouts are subject to the political whims of the day and may not be guaranteed at the same levels in the future, and burdening your kids with funding your retirement is not a great plan. Saving and investing for your own retirement is the best option. There are multiple ways to fund college including having your kids work to help pay expenses, getting scholarships, taking courses in community college to control costs, securing on-campus jobs like resident advisors that may provide free room and board, funding from grandparents or other relatives, and military service to pay for college expenses through the G.I. Bill. Not everyone has all of those options, but there are more ways to pay for college than for retirement and more people can participate in the process. For this step, you can invest in a 529 Plan, a Coverdell Education Savings Account (ESA), a regular brokerage account, or some combination of those options. The amount will be dependent on what you can afford and the type of support you are aiming to provide for educational expenses.
6. Pay off your house early
You are saving for retirement and the kids’ college fund is on track. Time to knock out the house payment. Channeling extra money toward the principal can reduce your overall house cost by tens of thousands of dollars over the life of the mortgage. Paying off your home also insulates you against future increases in housing costs. According to Federal Reserve Economic Data, the median sale price of a US house today is $429,300. A year ago, at the end of July 2025 it was $410,800. Ten years ago, it was $289,100. Twenty-five years ago, it was $163,200. My grandmother bought her two-story house with a basement and a decent sized yard about 90 years ago for $6,000. Over the long haul, housing prices only go up, so eliminating your largest monthly expense by paying off your home is a large component to long-term financial prosperity.
7. Build wealth and give generously
We could do a deep dive to explore building wealth and giving, but the surface conversation is that having money gives you options. You can do good things for other people, travel, invest in your community, buy back your time…the options are limitless. Building wealth can sound selfish to some, but the largest individual contributions came from some of the wealthiest individuals. Andrew Carnegie helped fund over 2,500 libraries with his steel empire, and John D Rockefeller funded medical research that all but eradicated yellow fever in the US. History is filled with examples of generous philanthropists including current mega-givers Bill Gates and Warren Buffett who have given billions of dollars to multiple causes. While giving on that scale is not in reach for most people, giving is an important part of living a balanced financial life. Giving connects us in a meaningful way to the world and reminds us that there we are not walking through life to serve ourselves, but to be part of purposes and causes bigger than ourselves. Psychologists cite the numerous benefits of giving from increased happiness and fulfillment to reduced stress and improved mental resilience. Taking our eyes off ourselves to focus on the needs of others tends to have a positive impact on our lives and allows us to keep our own challenges in perspective.
What’s Your Next Move?
That’s the Ramsey baby step formula with some basic explanations about each step. It is not the only way to get out of debt and move into a position of financial freedom, but it is a time-tested approach that has worked for millions of people.
Let’s be honest: when it comes down to it, those millions of people don’t matter nearly as much to you as the person in the mirror. If you find yourself longing for a more stable financial picture, use today to step back, evaluate your circumstances, and set a goal for where you want to be this time next year. Come next July 4th, fireworks will go off, hot dogs will be consumed in disgusting quantities by competitive eaters, and another year will have passed. What do you want your financial picture to look like?
I urge you to honestly assess your current situation, reflect on the steps above, and set a date for your own financial independence. If you want help assessing where you are and determining the path to hitting your financial goals, I’m happy to help. I do free financial coaching as a community service and will be happy to use my experience and financial training to give you a confidential educated third-party view of where you are and what steps you can take now to reach your goals. Whether you want help or not, take the time to set your personal Independence Day. This time next year, you’ll be glad you did.