Know Where You Are So You Know Where You Are Going – 7 Steps to Financial Independence

PatrioticKnow Where You Are So You Know Where You Are Going – 7 Steps to Financial Independence 

Financial Independence – The age obtained where earning an income is a choice and not a have to.  

Financial Independence is the new retirement.  The days of the rocking chair are over!  One chapter is closed and a brand new chapter of giving back and serving is opened. In order to get to that place, there are 7 steps to take along the journey to financial independence.  


Step 1     –     Adapt a Strategy for Communication

This is foundational. If you can’t communicate about money with your spouse, it will be tough to make this work.  Unfortunately, most people don’t have ground rules or boundaries when it comes to communicating about money. Instead they communicate through their emotions.  Filtering anything through emotions will end up being well…..emotional rather than constructive. It is important that couples agree on committing to the 10 commandments of financial communication. It will positively affect every aspect of a marriage.

Step 2    –     Determine Risk Level 

Risk drives decision making.  Effective decision making affects the probability of success.  We all are uniquely wired for risk.  I refer to it as the Prudent Money DNA.  It is mission critical to really understand our risk levels and how we react to risk. If you get your risk level wrong, you could end up adapting the wrong risk level and greatly effecting your probabilities of financial independence. Want to know your Risk Level?  Click here for a free analysis.

Step 3     –     Determine Goals and Benchmarks

For every step you take, there should be a “why.”  Most people don’t know why they are going through the process.  For example, why are you saving? It is not enough to answer for retirement. Retirement could mean anything. How about a date and age you want to choose financial independence and a monthly amount you can withdraw. It is all planned ahead of time.  You also need benchmarks at the end of the year that tell you whether you are on track for financial independence. Knowing where you are so you know where you are going.  It increases confidence.

Step 4     –     Save, Invest, and Manage Money

Pop Culture Finance focuses on saving. They lead you to believe that success is predictable based on how much you save. That is very incomplete advice. There are other components. You start with saving. Then you have to invest the money into investments that are appropriate for the current risk level and environment. Then the money needs to be managed for risk and growth. It is a process. Pop Culture Finance says just invest it and forget about it. I would suggest you lower your potential for success without  a Plan A and Plan B approach.  Plan A for when the market goes up and Plan B for when the market doesn’t go up.   

Step 5    –     Monitor Benchmarks

Know where you are so you know where you are going. By using a benchmarking plan, you can know if you are on track, ahead, or behind at the end of each year. It is about having a target amount of total accumulated investments. For example, if by the end of the year your investment account was $500,000 then you would be on target.  It not only gives you confidence to know your place on the journey it also gives you an advantage in decision making and effective decision making increases or decreases your probabilities towards Financial Independence.   

Step 6      –    Financial Independence Requires More Than Just Investing

Yes investing and managing money is a particularly important process for obtaining financial independence.  However, there are other areas that threaten financial independence and remove the freedom to have that choice.  There are 7 other plans that you need to have in place – a values plan that puts your whole family on the same page, estate or insurance plan in the event of a death, a spending plan is foundational, if applicable a college plan, an adequate emergency plan keeps you out of trouble, a get out of debt plan is the first priority, and an identity protection plan to combat the inevitable.  Breakdowns in any of those areas can diminish your chances of financial independence. The key to these plans is to keep it simple.  Each plan should be no more than a few pages of key principles and steps and everything ties in together. 

Step 7     –     Educate Along the Way

It is critical to be a lifetime student of money and how money works.  It is important to commit to a little time each week to learn and grow in your knowledge of money.  Most importantly that learning comes through the lens of stewardship and God’s economy.  Whether it is listening to radio or TV talk shows or reading books and newsletters, financial literacy equips you with the ability to interpret what you are seeing and experiencing when it comes to money.

Do you want to talk about your financial independence day?  Give Judy Parrish a call at 972-386-0384 and set up an initial consultation with Bob.  He can do a quick assessment over the phone or email Bob directly – bob@prudentmoney.com  

 

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