We all look forward to the day when we can do what we want with our time – no need to rise and shine with the sun, working long hours. Instead, we can spend our time doing what we want to, when we want to.
For that to happen, though, you have to have a plan – a plan to achieve financial freedom.
You can’t simply wake up one day and decide to be financially free, you’re going to need to think ahead to the end of your current working life. Start by working out what’s important to you in life and working backwards from there.
Establish Your Plan
Do you want to retire and enjoy your free time? Will you want to travel or take up an expensive hobby, or are your dreams simpler than that? Perhaps you want to help out your family.
A simple lifestyle can mean you need relatively little money to achieve financial freedom, while a more luxurious one will cost more.
Perhaps you don’t want to retire at all but want to start your own business. That, too, will need to be built into your financial plan.
This may seem like a morbid question, but you’ll need to estimate how much money you’ll need to live comfortably for a specific number of years.
If you’re going to retire at 55, won’t be starting a business, and need enough to live on until the age of 90, for example, you’ll need enough income to support yourself/your spouse for 35 years, plus adjustments for cost of living and some cushion built in for surprise expenses.
At Smart Financial, we advocate planning to 100 to be sure you are covering yourself fully, but remember to take life expectancy averages with a pinch of salt – you are not average. Focus on a range of outcomes to get a better idea of how long you may need to make your savings last.
Investments, annuities and savings are all types of financial vehicles through which you can save for what comes next and be smart about it. Savings may fund the early years of your retirement, for example, while annuities and other investment options can fund later retirement. Each of these financial vehicles has different degrees of risk and potential for growth. You may want help to decide which is best for you.
(Get the advice of Smart Financial CEO Steve Martin in a recent blog post on protecting your lifestyle in retirement.)
Start by saving and investing a certain amount of your income every month, as early as possible. As you work, you know that this money is working “for” you, growing steadily, adding to your retirement finance options.
Once you’ve established your financial freedom plan, stick to it. As you continue to invest in your future, don’t be tempted to withdraw money for short-term concerns like paying bills or buying a new and expensive toy.
Instead, let the money grow untouched so that it can work for you and provide what you need for financial freedom in the future.