WASHINGTON — As we enjoy the upcoming Fourth of July holiday and consider the themes of freedom and independence, I wanted to write an article about financial independence.
As I began writing, I quickly realized that the challenge of this topic is in defining what I mean by the term “financial independence.” This got me to wonder whether others might have the same experience I had — thinking I knew what it means to be financially free — until I tried to define it. I realized this dilemma likely comes from the reality that everyone has a different definition of what it means to be financially free.
Occasionally, I’ve taken an informal poll in my circle of friends asking them what net worth they’d need to achieve to feel financially independent. The range in answers is astounding and sheds light on each person’s upbringing, general outlook, personal values, and money experiences.
For example, some people say they’d feel free if they achieved a net worth of $1 million. Others need much more than a million dollars to feel financially independent, either because they’ve long passed that mark, or they expect to continue in a standard of living that requires a much larger nest egg.
Rather than attempt to convince you of a universally accepted definition of financial freedom, it may be more helpful to provide a list of common life experiences of people we might consider to be financially independent. Using this list may give you insight into the experiences you may want to emulate. As Victoria Castle suggests in her book, The Trance of Scarcity, having a sense of financial freedom and abundance can come by taking time to “connect now to what you care about, to whatever matters most to you.”
As you scan the list and identify things that resonate with how you might want to experience financial freedom, note that I’ve provided one simple step you can take to move you incrementally toward a greater sense of accomplishment when it comes to this aspect of your money.
I’d be remiss to proceed without mentioning how important it is to review the list on your own and then consider engaging in conversations with your life partner and other family members to create a priority list and plan for reaching financial freedom together.
Here are some idea starters for you to consider as you begin to articulate your personal definition and actionable steps toward Financial Freedom:
- Take the vacation of your dreams: Earmark unexpected sources of income as vacation funds.
- Pay for your children’s or grandchildren’s college: Set up automatic contributions to a 529 plan.
- Support a family member in need: Consider nonfinancial ways of assisting such as helping around the house or lending a supportive ear.
- Retire earlier than you expect: Check that your 401(k) contribution qualifies you for the maximum company match.
- Create wealth by selling your business: Develop a succession plan or timeline for selling your business.
- Work in a job you love that also pays the bills: Find volunteer opportunities in a nonprofit organization that could lead to a paid position.
- Handle financial surprises with ease: Direct extra cash to create sufficient emergency funds.
- Solidify your cash flow: Eliminate school loans, auto loans, credit card balances or mortgage debt.
- Live in your dream location: Schedule an extended vacation in that location to allow you the time to immerse yourself into the culture and lifestyle.
- Buy a vacation home: Rent a home in your area of interest and spend time visiting open houses.
- Spend guilt-free: Include in your regular budget an amount for guiltless luxuries.
- Leave money for your children: Calculate how much you could spend in retirement while leaving enough for a financial legacy.
- Have unlimited free time: Create more free time by finding ways to reduce your commute and use that time for things you enjoy like listening to a book on tape.
- Give money to those less fortunate: Redirect some discretionary spending (i.e. the daily expensive coffee) and start making monthly donations monthly to a charitable cause.
- Live free from money fears: Identify one source of your money fear and one action to take to reduce that fear.
You may also find this list helpful if you’re facing a life transition such as divorce, job loss, an empty nest, or loss of a loved one. At these times it’s important to allow time to accept the reality of the change in plans. Then you can begin to rework your financial plan under your new set of circumstances.
This list may help you find ways to forge a different path to financial freedom. Oftentimes, taking one of these small steps helps to regain the confidence and hope to move forward in the face of unexpected life events.
My hope is that as you clarify your personal definition of financial freedom, you’ll discover ways that you’ve already achieved a certain level of freedom. It’s tempting to focus on an endgame definition like achieving a high total net worth.
The reality is that life brings many surprises. How we choose to respond to unexpected events should be grounded in what’s most important to us. Having clarity about your priorities in the midst of life’s ups and downs increases the chance you’ll enjoy aspects of financial freedom throughout your life in ways that most resonate with you and your family.
Dawn Doebler, CPA, CFP®, CDFA® is a senior wealth adviser at The Colony Group. She is also a co-founder of Her Wealth®.
