The golden rule of financial planning: if you can plan it, you can achieve it
Over the past July 4th, we celebrated our country’s history of declaring independence and guaranteeing basic human freedoms. But true freedom requires financial independence, as well.
Self-sufficiency isn’t guaranteed, but every one of us has the opportunity to achieve it. Check out these four steps to achieve financial independence:
Make sure to plan ahead.
During your saving and investing years, you must spend less than you make, no matter how high your income. It is vital that you invest prudently, without letting your emotions get in the way.
Rather than saving 10% of your income by rote, take the time to create a financial plan and understand the math behind how your savings amount translates to an expected portfolio value.
You need roughly 20 times your annual income in savings to retire adequately. Are you prepared for this?
If you can plan it, you can achieve it.
The day you retire or stop investing money for your retirement is a very important day. It’s a big leap of faith that your money can outlive you. Don’t go at it alone: You must strategize and plan your retirement day so you know what you’re getting into.
You should understand what income your portfolio can afford to pay you in up markets and down, because that will be your annual income now. You should also be absolutely comfortable with your retirement income, so try to overestimate your needs when you plan.
Protect it with your life.
Many people don’t realize that growing wealth requires very different skills than preserving it. They assume that preservation just means you should just buy more bonds.
Yet once you stop working, your ability to earn wealth back after a financial mistake typically declines. It’s hard to get re-hired into your old job, especially if your health deteriorates or you must care for an aging loved one. Many very smart and educated people grow their wealth and lose it multiple times during their lifetime because they don’t know how to hold on to it.
Preservation of wealth requires patience and discipline, but also the practice of asset allocation and rebalancing. How do you rate your own ability at these? Chances are that a professional advisor is better at it.
Enjoy what you’ve earned responsibly.
While the world was battling COVID, were your portfolios built to withstand the tremendous declines we saw in the global stock markets?
Were you able to continue to take retirement income from your portfolios at the same level as previous years during the COVID-recession? If so, it was likely only possible because you planned ahead, expecting the unexpected.
You cannot afford to let short-term market events cause you to abandon what should have been a long-term plan. Even though we all want to give up every once in a while.
Once you build your wealth and achieve financial independence, trust in the science you used to create the plan. If you can do that, you achieve self-determination and peace of mind.
Source: Unknown. “Questions to Ask an Agent When It’s Time to Sell”. Financial Media Exchange https://app.fmexdirect.com/Content-Library/Categories/Personal+Finance/View/G674z/Four+Tips+for+Gaining+Financial+Independence. Accessed 11 August 2021.
CWM Advisory, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any agency of CWM Advisory, LLC. Examples of analysis performed within this article are only examples. They should not be utilized in real-world analytic products as they are based only on very limited and dated open-source information. Assumptions made within the analysis are not reflective of the position of CWM Advisory, LLC