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Wednesday, April 24, 2024

Financial Independence Day

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This year Independence Day will be a time of national celebration.

According to a recent Harris Poll, “The stars and stripes, Statue of Liberty and the National Anthem are the three top symbols of the United States.” Freedom, democracy and financial security are the key elements of the American dream. Most Americans dream of financial independence and being able to unleash the shackles of a lifelong job, however, only about five percent of the population will ever achieve true financial independence.

Financial Independence

Financial independence is having sufficient income for family financial needs and goals from a source or sources other than paid employment. It means not having to work a nine-to-five job unless you choose to do so. It means that you have clearly identified your goals and have developed and funded a strategy to pursue them. Financial independence is different for every family, since their circumstances and goals are different. There is no category that identifies a family as “financially independent,” since it is an experience of freedom at the psychological level.

The Millionaire

Next Door

In the book, The Millionaire Next Door, the authors outline seven common factors of American households with a net worth of over $1 million. Typically they are business owners, only married once and are compulsive savers and investors. The seven common factors of the affluent are:

Live well below their means

Build wealth by efficiently allocating their time, energy and money

Believe that financial independence is more important that high social status

Did not inherit their wealth

Their children are economically self-sufficient

Proficient in targeting market opportunities

Own a business

Pursuing financial independence is not easy and requires discipline, sacrifice and hard work. On the other hand, working a lifelong nine-to-five job, being saddled with crippling debt and not achieving your financial goals is not an easy life either.

The Journey to Financial Independence

The journey to financial independence begins with the first step. It begins with understanding the principles, creating a vision and developing family goals.

First, buy and read the book the Millionaire Next Door, by Thomas J. Stanley and William D. Danko. It is a well-written and comprehensive study on why and how families achieve wealth.

-Create a vision of your family as financially independent. A vision is a clear mental picture of what you see in the future.

-Develop a set of family financial goals to pursue your vision. All family members must mutually agree on the goals that are established. There is little likelihood of success, if the family members are not working in the same direction.

-Develop and implement a strategy to pursue each of the key financial goals.

-Establish a financial lifestyle below your means and save and invest as much as possible.

-Monitor progress by keeping a monthly income and expense report and a semi-annual family balance sheet.

-Semiannually review progress towards the key goals.

As America celebrates Independence Day, begin the process of creating your vision of financial independence. If you are willing to devote the time, energy and resources, you can begin building wealth and take your family on the journey to financial independence. Some might say that this seems like a lot of work and it is! However, think of the time as an investment. It is an investment that will help lead you and your family to your Financial Independence Day.

Michael G. Shinn, CFP, Registered Representative and Investment Adviser Representative of and securities and investment advisory services offered through Financial Network Investment Corporation, member SIPC. Visit www.shinnfinancial.com for more information or to send your comments or questions to shinnm@financialnetwork.com. © Michael G. Shinn 2009. Opinions expressed are not intended as investment advice or to predict future performance.

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