Financial goals are as different as the people behind them. Regardless of the specifics, for most individuals, a sense of financial freedom is what the goals represent. At the time we celebrate our national independence, it is fitting that we consider the liberating nature of financial independence. Both varieties of independence require diligence to attain, and discipline to maintain.
Keys to Attaining Financial Freedom
1. Understanding Trade-offs. When we study why some people are able to achieve financial freedom and yet others do not, we come face to face with financial trade-offs. Someone who earns $500,000 per year and saves nothing will eventually be less free (financially), than someone who earns $50,000 and saves $5,000. Earning capacity by itself does not equate into financial freedom. Making a trade-off – deferring something from spending/consumption today so that you can have more tomorrow – is required to achieve financial freedom. Individuals who are financially free understand and embrace these trade-offs.
2. Drowning out the “Noise”. The other key characteristic that we see in most financially secure individuals is an ability to “disconnect” from the hostile and negative financial news cycle. In order to keep people hooked, financial “journalists” hype the current environment as transitory and about to change so you will “stay tuned”.
3. Maintain a stable investment structure. A key to being able to master the needed patience for the long run is a simple, understandable investment structure. Always trying to find the proverbial “needle in a haystack” is far too conducive to short run impulsive behavior and runs counter to what most investors require. Instead, low-cost, passive funds with broad asset class diversification provide the remedy. Moreover, this strategy allows investors to focus their gaze on what ultimately is the most important element in their quest for financial freedom…what they save (if still working), and what they spend (if retired).