The golden rule of financial planning: if you can plan it, you can achieve it!
On July 4th, we celebrate our country’s history of declaring independence and guaranteeing basic human freedoms. But true freedom requires financial independence, as well.
Self-sufficiency isn’t guaranteed, but every one of us has the opportunity to achieve it. Check out these four steps to achieve financial independence:
Make sure to plan. During your saving and investing years, you must spend less than you make, no matter how high your income. You must invest prudently, without letting your emotions get in the way.
Rather than saving 10% of your income by rote, take the time to create a financial plan and understand the math behind how your savings amount translates to an expected portfolio value. Your ability to save for your goals may change over time. Starting early can be the key to success.
You need roughly 20 times your annual income in savings to retire adequately. Are you prepared for this?
If you can plan it, you can achieve it. The day you retire or stop investing money for your retirement is very important. It’s a big leap of faith that your money can outlive you. Don’t go at it alone: You must strategize and plan your retirement day so you know what you’re getting into.
You should understand what income your portfolio can sustain. How much can you afford to consistently withdraw in up markets and down? That will be your annual income now. You should be comfortable with your retirement income, so try to overestimate your needs when you plan.
Protect it with your life. Many people don’t realize that growing wealth requires very different skills from preserving it. They assume that preservation just means you should buy more bonds.
Once you stop working, your ability to earn wealth back after a financial mistake typically declines. It’s hard to get re-hired into your old job, especially if your health deteriorates or you have to care for an aging loved one. Many very smart and educated people grow their wealth and lose it multiple times during their lifetime because they don’t know how to hold on to it.
Preservation of wealth requires not only patience and discipline but also the practice of asset allocation and rebalancing. Your financial advisor can help!
Enjoy what you’ve earned responsibly. Is your portfolio built to withstand times of tremendous declines in the global stock markets? Will you be able to continue to take retirement income from your portfolio at the same level? This is only possible if you plan, expecting the unexpected. You cannot afford to let short-term market events cause you to abandon what should have been a long-term plan.
Once you build your wealth and achieve financial independence, trust in the science you used to create the plan. If you can do that, you achieve self-determination and peace of mind!
"Four Tips for Gaining Financial Independence." FMeX. 2021.
