The road to financial independence is not a simple one. Lisa Smith, writing for Investopedia, outline the issues and dilemmas we face on that journey in the following article. With over 20 years as a financial writer, Ms. Smith offers a very clear analysis of the pitfalls that can slow or even divert us on our way to financial freedom. FFN Editors
Two Roads: Debt Or Financial Independence?
- Get a job
- Start to save
- Get raises
- Save as salary increases
- Take advantage of dollar-cost averaging (DCA)
- Benefit from a bull market
- Hit magic number
It sounds simple and straightforward on paper, but in reality, earning a high income does not automatically translate into a high net worth. This article will explain why.
Income and Expenses
When most people are starting out, they rent a small apartment. Getting married or setting up a living arrangement with a significant other generally results in a higher income, but it is also likely to lead to the desire for more space – often at the cost of the desire to make maximum contributions to a pair of individual retirement accounts (IRAs) or 401(k) plans. Unfortunately,there are many things that people may not know about an IRA, and the opportunity to increase savings often takes a back seat as living accommodations are upgraded to a single family home.
After a decision is made to have children, buying a minivan, paying for clothes, toys, soccer, hockey, ballet, and other associated costs results in an increased outlay of cash, not only eliminating the ability to save more, but potentially resulting in a diminished savings rate. Having children can also result in moving to a larger home in a better school district and,the decision to pay for tuition at a private school, and then maybe even a college education. All of these things start to take precedent over funding your own retirement savings.
Lifestyle decisions can also have negative impacts on savings rates, even as income increases. Scrimping and saving simply isn’t fun. If we can afford to take a luxurious vacation, buy that sports car, upgrade the wardrobe, spend a weekend at the spa, buy that place at the beach or chalet in the mountains, don’t we deserve it for all the hard work we have done?
The desire to spend instead of save is also fostered by a quick look at the shenanigans on Wall Street and the poor investment returns in our portfolios. Anybody holding Enron, Worldcom or dozens of other failed firms in their portfolio aren’t likely to be singing the praises of savings. A look at most investment statements during a bear market also serves as a reminder that a 20% loss is not recovered by a 20% gain. If we’re going to be cheated by the firms we invest in and watch our portfolios decline in value even when we diversify, it’s easy to justify the purchase of something we will at least be able to enjoy in exchange for our money.
Geography can also work against the ability to save. In Silicon Valley, a modest ranch house can sell for $500,000. In New York City, private school tuition for three children can reach six figures and mortgage payments of $150,000 per year are not uncommon. Moving up in the world also places one in a different position on the socioeconomic scale.
If you are living the upscale lifestyle of an investment banker to the rich and famous, driving to a client meeting in a Ford Focus is out of the question. Similarly, if everyone in your social network has a housekeeper and vacations in the Hamptons, those items become an expected part of the lifestyle in order to maintain your social network and class. That correlation between standard of living vs. quality of life is very common.
The Eye of the Beholder
Although it might sound extravagant to those of us earning the national median of around $50,000 (according to Census Bureau figures), having more money (even much more money), doesn’t always put people farther ahead. In fact, those earning more almost always have a lifestyle that leaves them with more things to pay for. That said, before class envy takes hold, those of us at the lower end are also not skipping our lattes, nights on the town, cable television, cell phones, cigarettes, alcohol, new cars, and other nice-to-have-but not-strictly-necessary expenses.
In the end, everybody wants whatever they can afford, and instant gratification is a whole lot more fun than watching a quarterly brokerage statement for 20 years or more. As a result, most of us end up financing our lifestyles with debt. And many are worried that standard of living vs. quality of life is very common.
The Bottom Line
Sticking to the seemingly simple plan of earning more and saving more requires serious discipline and sacrifice. It means living below your means, regardless of the level of your means, and making savings a priority. If requires having a plan, saving and maximizing the amount you invest in our 401(k) and other savings vehicles before spending on the extras. It may not sound like fun, but years from now, when you look back at all the people who seemed to have it all but were really just getting by, you’ll be one of the ones laughing all the way to the bank
Our featured article in this edition of Financial Freedom News recommends a very different approach to the idea of planning for retirement. Richard Eisenberg, a contributing writer for Forbes magazine, recommends that we focus on attaining financial independence instead of planning for retirement. In this two-part article Richard outlines his views on how to make this goal a reality.
In this article, we are given the 5 rules for declaring our financial independence. The second part of this article, in our next edition, will discuss several types of retirement calculators and their role in the planning process. FFN Editors
Plan For Financial Independence, Not Retirement
Richard Eisenberg, Contributor to Forbes Magazine Personal Finance Section (www.forbes.com)
Declaring your Financial Independence Day is a better idea than trying to come up with “the number” you need to retire, especially if you’re in your 50s or 60s and don’t have much time to pump up your savings.
What exactly is financial independence or, as some call it, financial freedom? That depends on your own definition.
In a new Capital One 360 survey, 44% of U.S. adults said financial freedom meant not having any debt, 26% said it meant having enough saved for emergencies and 10% defined it as being able to retire early.
I go with Jonathan Chevreau, the Toronto-based author of the new U.S. edition of Findependence Day, a “fictional finance” book, and creator of the Findependenceday.com site. His novel is about a young debt-ridden couple, Jamie and Sheena Morelli, and their road to reaching you know what.
Chevreau says that when you’re financially independent, you work because you want to, not because you have to. “Findependence is necessary for retirement,” he says. “You can be findependent and not retired, but you can’t be retired without being findependent.”
Chevreau targeted April 6, 2013 – his 60th birthday – as his Findependence Day and reached that goal, but he still edits Canada’s MoneySense magazine. “I have a job I like, so why would I quit?” he asks.
5 Rules to Declare Your Findependence
Chevreau’s five rules for achieving findependence:
1. Pay off your home in full. “That’s really the foundation,” he says.
2. Find multiple sources of income for retirement. These can include interest and dividends from your investment portfolio; rental real estate; freelance or consulting work; Social Security; an annuity; and perhaps a guaranteed pension.
3. Develop “guerrilla frugality” habits. Chevreau calls this “becoming a Frooger.” Keeping expenses low while working full-time will make it easy to live that way in retirement and reduce the amount of savings you’ll need for a comfortable retirement.
“If you spend like a millionaire, you’ll end up a pauper,” says his book’s protagonist, Jamie. “Spend like a pauper and you have a shot of becoming a millionaire.”
4. Save 20% of your gross income. This will be impossible for many people, but not for others. If you can’t save 20%, try for 15 or 10%.
5. Invest with a “Lazy ETF” portfolio. That means selecting, say, three exchange traded funds– a U.S. stock fund, an international stock fund and a U.S. bond fund – and holding onto them.
Review their performance once a year. Then rebalance your portfolio if the markets shift and you discover you have a higher percentage in one of these asset classes than you want. (Use index funds instead of ETFs, if you prefer.)
Women, Men and Money
At the risk of overgeneralizing, I think many women gravitate toward the concept of financial independence, while men often prefer focusing on “the number.”
In the initial episode of the two-part Consuelo Mack WealthTrack public television series on Women, Investing and Retirement that premiered June 28, Jewelle Bickford, senior strategist for GenSpring Family Offices, said the first question her male clients ask in their monthly or quarterly meeting is “how has their portfolio done, whereas the women tend to think: ‘Will I have enough?’”
(This ends part 1 of this article. Part 2 will follow in our next post). FFN Editors
Let us know your thoughts iregarding this nformation in the Reply Section below. Also, please click “Like” and “Share” this artilcle with others who may be interested in achieving financial freedom.
(Disclaimer: The views in the above article are strictly those of the author. They do no necessarily represent those of FFN. Please use due diligence prior to applying the concepts, recommendations and/or in purchasing any products or services offered by the author). FFN Editors
Here are 10 forex trading tips from investing guru Vince Stanzione of 50WallStreet.net. Vince suggests an approach for taking advantage of the huge forex (i.e. Foreign Exchange) market that does not follow the suggestions commonly cited in the media. Instead, he uses an approach that is more like investing by using longer time frames. This is different from trading the forex market in a more short-term, day trading style.
Let us know what you think of this information in the Comment section below. And, please “Like” and “Share” this information with others who may be interested in achieving financial freedom. FFN Editors
(Disclaimer: The views expressed in the above video are strictly those of the presenter and their sponsor(s). They do not necessarily represent those of FFN. Please use due diligence in applying the concepts, recommendations and/or in the purchase of products or services offered by the presenter). FFN Editors
Given the challenges in achieving financial freedom, here are 10 lessons from Street Smart Finance that can help keep you on track. These are seminal recommendations taken from 10 different financial management thinkers. They represent the best thoughts on the financial independence process and broaden the range of expert knowledge available to us.
Let us know your thoughts in the Comment Section below. Also, please “Like” and “Share” this information with others interested in achieving financial freedom. FFN Editors
Achieve Financial Freedom: Awesome Lessons to Spruce up Your Finances
Posted by Shilpan for Street Smart Finance (www.streetsmartfinance.org)
“An investment in knowledge always pays the best interest”. — Ben Franklin
Achieving financial freedom is no small feat to undertake. Bogeyman is around the corner to snatch up your money before you even know. Even brightest among us face peril of losing wealth, if few major bumps come along the way.
How can you achieve financial freedom amid the ocean of financial information to explore? If you’ve felt hapless finding your safe harbor of financial freedom, you’re not alone!
Isn’t it a fabulous idea if you can get valuable advice to achieve financial freedom from 10 brilliant articles of financial wisdom on the blogoshpere? Of course, it is.
1. Saving money is the key to achieve financial freedom
The first step is to save aggressively. I’ve been saving 50%-75% of my after tax income every year for the past 13 years. I try not to be a miser and have done my best to try to spend money on things I enjoy e.g. vacations, food, a home, and tennis. Where I did “sacrifice” was not buying higher-end new cars (all but one were second-hand and under $20K) and going on less exotic vacations. Amanpulo I’m coming for you eventually! www.FinancialSamurai.com
2. Live Modestly
A lot of rich people constantly stress about their financial situation, all the while spending like there’s no tomorrow. If you’re making $500,000 this year and spend $400,000, you’d better hope that the economy doesn’t crash because once you’re out of a job, good luck funding that $400,00 a year hole in your pocket. By living modestly, you can relieve your stress and sleep well at night. Ostentatious living creates stress over your bills. – www.ModestMoney.com
3. Become a Renaissance man
What does becoming a Renaissance man mean? Think of a man like Leonardo da Vinci. Not only is the man famous for his inventions and scientific studies, but he is also one of the most famous painters of his time. His talents and interests were broad and deep, and there was no shortage of things to work on and explore. – www.InvestItWisely.com
4. You can’t go wrong with an Index fund
A portfolio of 100% stocks, which is what VTSAX(Vanguard Total Stock Market Index Fund) gives you, in study after study provides the greatest return over time. The only downside, and I mean only, is that the ride will be very rough at times. Admittedly, it’s a big one. If you are not tough enough to stay the course, if you get scared and bail when the storms are raging you are going to drown. But that’s a failure in you, not a downside of this asset class. – www.jlcollinsnh.com
5. You are responsible for your financial destiny; choose well
It is widely believed that small changes, practiced regularly, lead to out-sized results. Many great accomplishments began with tiny actions, implemented again and again. There’s research supporting the financial and personal benefits of quite a few of these habits. – www.barbarafriedbergpersonalfinance.com
6. Ordinary people can do great things too
I used to think that only geniuses and superheroes could achieve fantastic things in life. Or, at the very least, I felt that to have any success you had to be a totally go-getting, risk-taking, all out entrepreneurial maverick. At heart, I’m a cautious, down-to-earth kinda guy. My personal experiences, though, have shown me the potential that comes when you take positive action – even if it is only one step in the right direction. Extraordinary things are happening around us every day … all achieved by ordinary folk like you and me. — www.Vividways.com
7. Learn to invest in dividend growth stocks
The goal of Dividend Growth investing once retired is to maintain and grow your income from the dividends your portfolio produces. You maintain steady uninterrupted monthly retirement income as long as collectively your stocks will continue to produce 4% or more income annually and the dividend is not cut. – www.SeekingAplha.com
8. Think like a hamster, live like a hamster
Think less about money, more about time. Stop thinking of physical possessions in terms of money and start thinking of them in terms of time. Mentally convert money into minutes and you’ll achieve financial freedom faster. – www.FreeMoneyFinance.com
9. Save as if you were a 60 years old
Three things saved us: 1. Our unwavering 50% savings rate. 2. Avoiding debt. I’ve never even had a car payment. 3. Finally embracing the indexing lessons Jack Bogle perfected 40 years ago. – www.Mr.MoneyMustache.com
10. Learn from the Greatest Investor
Making money isn’t the backbone of our guiding purpose; making money is the by-product of our guiding purpose.” If you’re doing something you love, you’re more likely to put your all into it, and that generally equates to making money. – www.WarrenBuffett.com
Achieving financial freedom is all about developing mind-set to develop laser sharp focus on every aspect of your financial health. If you follow these articles of financial brilliance, you will be well on your way to the road of prosperity and happiness.
Disclaimer: The views expressed in the above article are strictly those of the author. They do not necessarily represent those of FFN. Please use due diligence in applying any concepts, recommendations and/or in the purchase of products or services from the author). FFN Editors
Does your goal of retiring seem farther away than ever. Well, you aren’t alone. The reality for many is that normal retirement at age 65 is being postponed to some later date. As a result of the financial crisis of 2007/2008 and the widespread lack of retirement preparation, many have to work longer to reach the financial level necessary to retire.
Putting a retirement plan into effect is a critical step in making retirement a reality. Trent Hamm writing in The Simple Dollar outlines several steps that can get your plan underway. And, perhaps close to where it should be if it has been side-tracked.
Let us know your thoughts about this information in the Comments section at the end of this page. Also, please “Like” and “Share” this information with others you may be interested in achieving financial freedom. FFN Editors
How to Approach Retirement Catch-Up
By Trent Hamm for The Simple Dollar
December 10, 2013
It’s well established that if you start saving about 10 percent of your income for retirement starting at age 25, you’re going to be in excellent shape for retirement when you hit age 65. This fact should be emblazoned on every single college and trade school diploma issued in the United States today: start saving for retirement now, not later.
Unfortunately, that fact doesn’t represent reality. Quite a few of us didn’t save at all during our 20s, and some of us didn’t save during our 30s, either. All the time, I hear from readers in their late 30s or early 40s (or even later) who are just now realizing that they need to start saving for retirement or they’re going to work forever.
If this describes you, the obvious answer is to start saving immediately. Right now. If you’re reading this article and you’re a professional adult without any retirement plan in place, you need to start a retirement plan.
If your employer offers a 401(k) program with matching contributions, run (don’t walk) to the HR office and sign up for that plan. Contribute enough to get every dime of that matching money because it’s essentially free retirement savings for you. If your employer doesn’t offer matching in their 401(k) program, look into opening an individual retirement account. I recommend contributing 10 percent of your income to that IRA, for starters.
So, you’re saving. Now what? The first thing to think about is time. If you’re only contributing 10 percent of your income per year to a typical retirement fund, it’s going to take about 40 years of saving before you can safely retire. Like it or not, that’s the reality of it.
If you’re 30 when you start, that means you’re looking at retiring when you’re 70. If you’re 40 when you start, that means you’re looking at retiring when you’re 80.
Another problem is that simply doubling the contribution doesn’t mean that you can halve the time. You can’t expect to contribute 20 percent for 20 years and match what you would get out of 10 percent over 40 years. That would only work if you were getting no return on your money – in other words, if your retirement plan involves stuffing cash into a mattress.
Saving for retirement once you’re behind the curve looks quite scary. Thankfully, there are a few things you can do to help improve your situation.
1. Get a Social Security estimate. The average American earns 40 percent of his or her retirement income from Social Security benefits, so knowing what you have coming to you can go a long way toward soothing retirement fears. The Social Security Administration offers a calculator to help you figure out how much you’re going to receive in benefits. It’s a good idea to wait until you’re as old as possible to start collecting benefits so you can maximize the income.
2. Look for ways to boost your income. Many mid-career folks find opportunities for freelance work and side businesses that can supplement their current income. Instead of simply spending that money, however, channel all of it into retirement savings (or into a mix of retirement savings and debt repayment). If you’re unsure where to start, visit your local library for information on side businesses and freelance opportunities related to your career path.
3. Hike up your savings. If you wish to retire earlier than 40 years from now, you’re going to have to save more. That means stowing away a higher percentage of your income. A good quick rule to use is that for every 10 years you want to shave off your goal, you need to double how much you’re saving. If you want to make it in 30 years, shoot for 20 percent per year. Twenty years? You should be saving 40 percent of your income per year. You need that boost to make up for the time you lost.
4. Cut out unnecessary expenses. Finally – and this is the tough part – you may have to consider some cutbacks. If you’re living a lifestyle that makes saving for retirement inconceivable, then you’re simply living beyond your means. You can’t assume that your ship will come in someday and everything will be OK. Everyone has expenses that they can cut from their life.
The road to retirement is a challenging road – but it’s not an impossible one.
Trent Hamm is the founder of the personal finance website TheSimpleDollar.com, which provides consumers with resources and tools to make informed financial decisions
(Disclaimer: The views expressed in the above article are strictly those of the author. They do not necessarily represent those of FFN. Please use due diligence prior to applying the concepts, recommendations and/or in purchasing any products or services offered by the author) FFN Editors
As we enter the new year, here are some life planning ideas from one of the best known successful people of our times. While Warren Buffett is often quoted regarding his investment philosophies and approaches, he often offers very sound ideas about living a well-rounded life.
In our featured video clip from the “Warren Buffett Blog Channel”, Mr. Buffett offers some important advice on where one can invest their time and energy to be a success in life.
Let us know your thoughts about this information in the Comments section below. And, please “Like” and “Share” this information with others who may be interested. FFN Editors
(Disclaimer: The views expressed in this video are strictly those of the presenter. They do not necessarily represent those of FFN. Please use due diligence in prior to applying any concepts, recommendations and/or in purchasing products or services from the presenter). FFN Editors
A key component in achieving financial freedom is reducing and controlling debt. Some financial freedom seekers have been able to shrink debt to an absolute minimum…even to zero. Most of us, however, will have debt in our lives. Managing that debt becomes critical in our ability to realize financial independence.
Our featured article by the GreenPath organization addresses this issue. GreenPath Debt Solutions, a nationwide, non-profit credit counseling and education organization, has come up with a list of ways to work your way out of debt in the New Year.
Let us know your thoughts about this article. Also, please “Like” and “Share” this information with others who may be interested. FFN Editors
Quick Tips On Getting Debt Under Control In 2014
SOURCE: GreenPath Debt Solutions. (GreenPath Debt Solutions shares ways to tame credit card bills and other debts).
FARMINGTON HILLS, Mich., Dec. 18, 2013 /PRNewswire-USNewswire/ —
The New Year is only a few weeks away, and after the holiday gifts and decorations are packed away, mailboxes will soon be packed with credit card bills.
“In early January, we really see a surge in calls from people worried about their holiday bills,” said David Flores, GreenPath personal finance counselor. “Once the excitement of the holidays has passed, they realize they need to get serious about paying off their debt in the New Year.”
Plan Your Finances – This is an important first step to take in the New Year. An active financial plan is a tool that helps reduce spending and increase savings.
“You shouldn’t simply be content with having money left over in your checking account, at the end of each month,” said Flores. Developing a plan will allow more financial freedom and enable you to get through financial emergencies.
Create a Budget – A budget forces you to get your spending under control, and to “live below your means,” which is exactly what you’ll need to do to start eliminating your debt. Making little adjustments to your lifestyle can add up to big savings. “Be sure to give yourself a bit of breathing room in your budget for unexpected expenses,” said Flores.
Prioritize Your Debts – “Debts that take first priority are the ones directly related to your ability to survive, such as mortgages or auto loans,” said Flores. “If you don’t pay these loans, you can face foreclosure or repossession.” Flores recommends prioritizing payments into three categories: high priority (housing, child support, utilities, car loans); medium priority (personal secured loans, student loans, home improvement loans); and low priority (loans for household goods, credit cards, doctor’s bills).
Estimate Available Income – Income can be a weekly paycheck, pensions, public assistance and investments. After you subtract taxes and other deductions from your total income, you will have your available income that you can work with each month.
Check Your Spending – Identify your past spending patterns by reviewing cancelled checks, receipts, and charge statements, for the past two to three months. Place expenses in “fixed” or “flexible” categories. Fixed expenses occur at specific times and rarely change (car note or mortgage). Flexible expenses fluctuate from month to month, and may possibly be altered to balance the plan (credit card bills, electric bill).
Use Cash for New Purchases – Unless you pay off the entire balance every month, you are probably paying interest on new purchases from the date of the purchase. If you stop using your credit cards all together, you will be able to reduce your debt more quickly. Because of compounded daily interest, it is far better to use cash for the things you need and adjust your budget to accommodate those expenses, rather than to use credit cards and then struggle to send large payments.
Review Your Plan – You should review your plan about every two to three months. Do not be surprised if, in the beginning, actual expenses are quite different from what you initially listed. Your plan will become more realistic as you continue the process.
Planning ahead early in the New Year can set you on a path to being debt-free in 2014.
For more information on GreenPath, or to receive a free counseling session and budget plan, log on to http://www.greenpath.org or call (866) 648-8122.
GreenPath Debt Solutions is a nationwide, non-profit financial organization that assists consumers with credit card debt, housing debt and bankruptcy concerns. Our customized services and attainable solutions have been helping people achieve their financial goals since 1961. Headquartered in Farmington Hills, Michigan, GreenPath operates 50 full-time branch offices in 11 states.
They also deliver licensed services throughout the United States over the Internet and telephone. GreenPath is a member of the National Foundation for Credit Counseling (NFCC). Our professional counselors are certified by the NFCC, and we are accredited by the Council on Accreditation (COA). For more information, visit us at http://www.greenpath.org.
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