What Exactly Does Financial Independence Mean to You?
Understanding Financial Independence
The term ‘financial independence’ means different things to everyone. How much money is enough for you to be financially independent is singular to you.
To become financially independent assumes that you have accumulated money you haven’t already spent…money that instead you have saved or invested. Author Morgan Housel writes in The Art of Spending Money, “Every dollar of savings buys a claim check on the future.”
Financial independence allows you to control how to spend your money. On the other hand, debt allows others to control some portion of how you spend your money. Every time you save money instead of spending it, you’re increasing your independence.
Defining Your Vision of Financial Independence
You probably have some vision of what financial independence means in terms of how you would live your life. Do you have a reasonable idea of what this vision might cost?
Of course, it’s your life so there are no wrong answers, but you should be fully aware of what your vision of financial independence will cost. After calculating the cost to execute your vision, you might find some tweaking is needed.
It’s sometimes helpful for purposes of fleshing out costs to think about where you want to live. Obviously, some places are much more expensive than others.
Measuring Your Progress Toward Financial Independence
Financial independence can often be a continuum and you need to determine where you are on that spectrum today. Perhaps you determine that you aren’t currently financially independent but financially stable. What would need to change for you to go from stable to independent? More savings, less spending? What are your assumptions regarding timelines for saving? What about life expectancy?
Common Financial Independence Planning Mistakes
When you go through the process of reviewing your financial independence status be careful not to over emphasize how much weight your primary residence has in this equation. I’ve witnessed a number of investors rely too heavily on selling their home to make up for a retirement shortfall. If you’re lucky, maybe the timing of the sale will be good, but what if the timing is poor?
The difference between selling one house and buying another is usually not enough to move you into financial independence. Systematic saving and investing will likely have a more meaningful impact on your financial future.
Using Financial Planning to Achieve Financial Independence
One of the primary reasons for financial planning in the first place is to help you discern where you are along the road to financial independence. Once you’ve honestly assessed this you can then look at what you need to do to move you toward your long term goals. Start there. Ready for a real conversation?
Disclosure
Apollon Wealth Management, LLC dba J.E. Wilson (Apollon) is an investment advisor registered with the SEC. This document is intended for the exclusive use of clients or prospective clients of Apollon. Any dissemination or distribution is strictly prohibited. Information provided in this document is for informational and/or educational purposes only and is not, in any way, to be considered investment advice nor a recommendation of any investment product or service. Investing involves risk, and while remaining invested can support long-term goals, it does not guarantee a profit or protect against losses. Advice may only be provided after entering into an engagement agreement and providing Apollon with all requested background and account information. Please visit our website https://apollonwealthmanagement.com for other important disclosures.