You’ve likely seen some of the retirement clichés over the years – sailing a yacht into the sunset; climbing the tallest mountains around the world; swinging like a pro in plaid on the golf course. But, are these scenarios really for you?
Let’s talk about the lifestyle you really want
Creating the lifestyle you really want may involve things like volunteering, working part time, finding a new passion, starting or building a business, getting a better job, or going back to school. You may simply want to spend more time with your family and friends.
Ultimately, you want the freedom to choose whether you want to work, what type of work you want to do, when you want to stop working (if you want to stop), whether it is time to start a new business, where you want to live, how much and in what style you want to travel, and to make many other choices about your lifestyle.
How do you gain the freedom to choose your lifestyle?
Money may or may not buy happiness, but it does provide you the financial independence to make choices about how you live.
There are only two ways to earn money – by working (for yourself or someone else as an employee), or by accumulating enough money to invest in assets that provide you an income (e.g. Stocks, bonds, investment funds, an annuity, a pension plan, a business, or real estate). Accumulating assets to provide current or future income has the potential to give you financial independence.
What is Financial Independence?
1. Having sufficient personal wealth to live, without having to work actively. For financially independent people their assets generate income that is greater than their expenses, for life.
2. Having positive net worth. Your assets (home, savings) are greater than your liabilities (mortgage, debts and financial obligations). To be truly financially independent, you would not be in a position where you had to borrow money.
3. Having an income source that grows to keep pace with inflation. If your passive income is not growing, there may be a time when you lose your financial independence because of inflation.
Having achieved financial independence, you are free to choose to do things that you enjoy.
How can you choose Financial Independence for yourself?
Unless you were born into wealth, you have to make good choices now. The idea is to achieve a balance between what you want and need currently, and what you want for your own future.
Here are some things I’ve learned on my own journey to financial independence:
1. Live within your means. Don’t buy too big a house or too fancy a car. Be frugal. Don’t move more often than you have to. Spend less than you earn.
2. Know when you want to retire, and implement a plan to accumulate the money you will need to live the lifestyle you envision. Don’t put it off. Every day you delay moves the destination farther away.
3. Reduce your most expensive debts as much and as quickly as you can. Don’t use credit cards unless you can pay the balance due in full every month. Consolidate your debt at the lowest rate.
4. Track your expenses using the Credit or Debit Card method for a minimum of two months so that you know where your money is going. This is easier than budgeting for most people.
5. Insure your family’s income against the risk of premature death, disability, illness, and the need for long-term care.
6. Make regular savings contributions on a pre-authorized basis. Pay yourself first. Put 75% to 100% of any windfall income into investment savings (e.g. employment bonuses, gifts, tax refunds)
7. Reduce your taxes now and in the future by maximizing use of TFSAs, RRSPs, RESPs, IRPs, IPPs
8. Diversify – hold some real estate (e.g. your home), some investment funds, some stock in companies other than your own (remember Nortel).
9. Don’t move in and out of the market any more than you would buy and sell your home on small changes in value. Pick an asset allocation and rebalance periodically.
10. When your mortgage is paid off, borrow prudently to invest and build your net worth.
11. Structure your affairs for administrative simplicity and to minimize probate tax and final income taxes payable upon your passing away. Have an up to date will and powers of attorney for property and personal care.
12. If you don’t have the time, interest, and knowledge to achieve steps 1 to 11, work with a Financial Guide who will help you implement all of the financial planning steps above, not just with your investments.
You have the freedom to choose financial independence!
Call me to get started with a free, no obligation discovery meeting.
“We wanted to analyze the ‘big picture’ and break it into manageable steps so we could implement over a 10- to 15-year timeframe. You took us beyond the advice of our CA to actually achieve those complicated steps we couldn’t seem to accomplish on our own, such as dealing with a host of financial institutions and CRA. You were patient and took the time to listen and then explain what steps were needed and why. You provided a thorough analysis with good suggestions on how to get it done.” I. McRuer, Client