The Fourth of July is not only an ideal time to get together with family and friends, feast on a barbecued meal, and enjoy the fireworks, but also to remember the privilege we have to live in an independent country with plenty of opportunities to build the life of our dreams. And for many of us, the life of our dreams includes having enough money to provide for our loved ones and live a secure life. So as you celebrate our nation’s freedom, take some time to think about your future financial freedom too.
What Is Financial Independence?
The term “financial independence” has such a nice ring to it. It evokes images of security, leisure, and opportunity. Financial independence is defined as having sufficient personal resources to live without needing to work to cover the basics. It means you have the time and resources to pursue fulfillment in your life. If you have financial freedom, you can focus on living your life rather than making a living.
But achieving financial freedom is easier said than done. A recent Retirement Confidence Survey revealed that only 23% of workers are very confident about having enough money for a comfortable retirement. (1) That may be because 32% of Americans have a zero balance in their savings account. (2) The good news is that whatever financial independence looks like to you, you can start working toward it today. Here’s how to get started.
1. Calculate Your Financial Independence Number
Figuring out how much money you need to be financially independent is tricky because it’s difficult to estimate how long you’ll live and what surprise expenses will pop up along the way. How can you accurately plan for something when you don’t have exact numbers for all your future expenses?
When evaluating your income needs, it can be helpful to work backward. Estimate your retirement expenses and, from there, determine how much money you’ll need each year. Many experts agree that the average retiree will need to replace about 80% of their income in retirement. Based on your current income and expected expenses in retirement, what does this amount look like to you?
2. Fill The Savings Gap
While it’s impossible to know exactly how much money you’ll need to be financially independent, you can estimate a ballpark figure. Let’s say you estimate you need $50,000 per year in retirement income, or $1.5 million total. Now you can work backward to determine how much you need to save per year by the age you’d like to retire. If you’re early in your career and have 20 or 30 more years to save, you may only need to put away 10 to 20% of your income each year. However, if you’re closer to retirement, you’ll need to save more aggressively.
If you’re worried that you may not have enough saved for retirement, there are opportunities for catching up in a hurry. The most obvious way is to save more before you retire. If you contribute to a 401(k), consider increasing that amount by 1% every quarter until you reach a new goal. You could also consider opening a Roth IRA and contributing the maximum $6,000 amount (or $7,000 if you’re age 50 or over) each year.
3. Create A Budget (And Stick To It)
Most of us have more money to save than we realize, but the only way to know that is to track your money through a budget. A budget will protect you from financial leakage, or money wasted in small ways that add up in a big way over time, and will also show you where you can cut back in order to invest more in your future.
When creating your budget, divide your expenses into three categories: fixed expenses (like your mortgage), variable expenses (like your grocery bill), and non-necessities. Then you’ll be able to see how buying expensive coffee every day or eating lunch out a few times a week adds up. That doesn’t mean you can’t enjoy these little luxuries, but knowing where your money goes may inspire you to put your money to work for you instead.
4. Eliminate Debt
It’s difficult to accumulate wealth and make progress toward financial freedom when you are paying high interest rates on things like credit cards, car loans, and student loans. Become relentless about reducing your debt and interest costs, and consolidate accounts where you can.
If you have a loan with a significantly higher interest rate than the others, you may want to work on paying off that one first. Or, if you’re feeling overwhelmed by debt, try paying off the loan with the smallest balance first, no matter the interest rate, in order to gain some momentum. Use a debt calculator to calculate out how long it will take to pay off your debt, then build extra payments into your monthly budget so you aren’t tempted to spend that money elsewhere.
Declare Your Financial Independence!
It may seem daunting to look at your financial freedom number and figure out how to make it a reality, but the truth is, you won’t get there unless you plan for it. At Sirius Wealth Management, we are committed to giving you the confidence to work toward financial independence through our tailored, comprehensive, and hands-on process. If you’re ready to take the first step to financial independence, call 636-449-4890 or email email@example.com to schedule a complimentary consultation today!
David has been working in the financial services industry since 1980 and specializes in financial planning with a focus on retirement planning. His planning concentrates on four specific goals: the accumulation of wealth, the reduction of taxes and volatility in retirement, the necessary strategies to deal with the risks of longevity, and the passing of an estate in a private, tax-efficient, and protected manner. David holds designations as a CFP® CERTIFIED FINANCIAL PLANNER™, ChFC® Chartered Financial Consultant, CLU® Chartered Life Underwriter, and AEP® Accredited Estate Planner®.
David has been married to his wife, Sue, for over 41 years, and together they have four children and eight grandchildren. Dave is a big believer in family and still has family dinners almost every Sunday with most of his kids, grandchildren, and even his 97-year-old mother. Dave and Sue have lived in St. Louis all their lives. He enjoys spending time outdoors, especially fishing with his grandchildren; he knows they will only be young for so long and you have to live in the moment. This year will be Dave’s 18th annual cross-country motorcycle trip with three college friends; together they have traveled through over 40 states on these memorable road trips.
Dave and Sue support many charitable organizations, including the MS-Society, Cystic Fibrosis, the Lupus Foundation, St. Louis Men’s Group Against Cancer, and the Mary Culver Home for vision-impaired women, where his mother lives. Their support comes in an unusual way: Dave and Sue donate a BBQ (including a pig roast, cooked, carved, and served on site), which is auctioned off at one of their live events. This popular auction item is a great way for Dave and Sue to have fun and do some good in the community. Dave also serves as a board member on the Estate Planning Council of St. Louis.