10 Steps to Creating Financial Freedom

10 Steps to Creating Financial Freedom

Retirement is a thing of the past. Rarely do people retire. Instead, retirement ends up being a new season in life that is often busier than before retirement. I like to think of retirement as financial freedom.

Financial Freedom – The time in your life when earning an income is a choice rather than a necessity

I love the phrase financial freedom. To me, it is the point you come to in life where you are FREE to serve and give back. To get there, planning is extremely important. It puts the why behind saving and investing. I get a lot of question on what makes up the process. I compiled a list of 10 important steps so that you will have an idea.

1     What is your number? Build your spending plan for retirement by creating two numbers.  

In today’s dollars, what kind of monthly income would you need at financial independence. This is your opportunity to create a future spending plan. Have fun with it. Think of expenses you wouldn’t have then and expenses you would have then but not now. This number drives everything. In fact, the best way to do it is by creating two numbers. First create the ideal future income. Then create the minimum number. If you stay between those two numbers, you are in the ball park. Being in the ball park is ideal!

2     Figure out how much risk you really want to take with your investments and get an advisor to help. 

It is important to understand what you have to earn on your investments to achieve your goals. More importantly, your risk level has to match that growth rate. It has to be realistic and achievable. For example, I don’t think that I would want a plan that depends on a growth rate of 10% per year.

3     Based on that number figure out how much you have to save.

Once you have the above numbers, now you can see how much you have to save each year. If it ends up being a higher savings number than you would like, then you adjust your goals.

4     Make sure you realistically adjust for inflation.

Just because we haven’t had a problem with inflation as of late doesn’t mean it has been removed from the economy. Inflation is a real threat and should be considered in one’s plan.

5     Make sure your financial independence plan has a benchmarking system so that at the end of each year you know if you are on track or not.

It is important that your plan tells you at what level your retirement assets need to be. If you are above that number, you know you are ahead of your goals. If you are below your number, that might signal to you that you need to change something.

6     Don’t “overcount” on social security.

I looked it up and yes overcount is a word and don’t do it when it comes to social security benefits. I don’t believe that social security is going away. At the same time, I wouldn’t count on 100% of the benefit too heavily. If you aren’t within 5 to 10 years of taking it, I would consider using 65-75% of the number for your projections.

7     Have a plan for managing risk and a frequency of how many times a year you are going to look at your strategy.

The stock market doesn’t always go up. What are you going to do when we go through the next big bear market? That can ruin the best laid plans.

8     Hire a financial advisor to take you through the process in the event you can’t find a program that will give you all of these numbers.

I wouldn’t expect you to go through this process by yourself. Besides, I have yet to come across a do it yourself calculator that will create these plans. In fact, we had to create our own system because I didn’t like any of the software programs that I found. A financial advisor that is fee based and also possesses the skill set to create a plan is invaluable.

9     Be intentional about things.

This has to be a priority. You have to be intentional on following through, monitoring the plan, and knowing where you are with your numbers at all times.

10   Review your plan each year and know up-front that all numbers could change- flexibility is key.

This isn’t a plan you set and forget. At the end of each year, it is important to check your numbers and review to make sure you don’t need to adjust something. Flexibility is key when you are projecting out 15 to 30 years.

If you need help and want to build a Financial Freedom plan, email me at bob@prudentmoney.com and we can discuss the process!


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