Over this beautiful and patriotic Fourth of July weekend, we as Americans celebrate our political, religious, and economic independence from tyranny.
Independence and self-sufficiency are core to the American set of values. Don’t forget that the above mentioned freedoms have been granted to us all without regard to our personal differences.
Another universal American value is the idea that each and every one of us has the opportunity to achieve financial independence. Keep in mind that financial independence isn’t granted to us, we have to earn it and then keep it around for the long run.
Check out these four steps to achieve financial independence:
1. Make Sure to Plan it
During your saving and investing years, you must spend less than you make, no matter how high your income. It is vital that you invest prudently, without letting your emotions get in the way. Trust me; I understand how emotional investing can be.
Rather than saving 10% of your income by rote, you should take the time to create a financial plan and understand the math behind how your savings amount translates to an expected portfolio value.
You need roughly 20 times your annual income in savings to retire adequately. Are you prepared for this?
2. If You Can Plan It, You Can Achieve it
The day you retire or stop investing money for your retirement is a very important day. On that day, you are taking the big leap of faith that your money will outlive you. Don’t go at it alone—your retirement day should be strategized and planned for so that you know what you’re getting into.
You should understand what income your portfolio can afford to pay you in up markets and down (you’ll be counting on the growth in the portfolio, and in many ways volatility is no longer your friend). You should also be absolutely sure you’re comfortable with your retirement income number.
3. Protect It With Your Life
Many people don’t realize that growing wealth requires very different skills than preserving wealth. And of course, I don’t mean that you should just buy more bonds.
For many people, once you’ve stopped working, your ability to earn wealth back after a financial mistake will decline. You might not be able to get re-hired, your health might not permit you to work, or you might need to spend your days caring for an aging loved one. Many very smart and educated people grow their wealth and lose it multiple times during their lifetime, not realizing that what is missing is the skill of preservation of wealth.
Preservation of wealth requires following the principles of patience and discipline, but also the practice of asset allocation and rebalancing. How would you rate your own ability at these?
4. Enjoy It Because You’ve Earned It
While the world was battling the Great Recession, we consistently advised our clients that their portfolios had been built to withstand even tremendously negative events. An example of one of these events was the 45-55% declines we saw in the global stock markets.
The vast majority of our clients were able to continue to take retirement income from their portfolios at the same level as previous years. Take special note that all of their portfolios have recovered in the bull market of the past few years.
You cannot afford to let short-term market events cause you to abandon what should have been a long-term plan. Even though we all want to throw in the towel every once in a while! Right?
Once you have built your wealth and achieved financial independence, trust in the science you used to create the plan. If you can do that, you have achieved true financial independence and peace of mind.
Do you feel like you’ve experienced true financial independence? I would love for you to share your experience with us in the comments section!