“Guarding Your Wealth” is a nationally syndicated weekly personal finance column written by Jeffrey D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group, a private wealth management firm that employs sophisticated proprietary strategies designed to protect and grow its clients' investments. Please visit our website, www.guardingyourwealth.com to read past articles in our archive.
(PRWEB) July 11, 2005 -- As our nation recently celebrated its freedom, we
are reminded of the ‘unalienable rights’ our Founding Fathers appreciated: life,
liberty, and the pursuit of happiness. Sounds like the ideal retirement, doesn’t
it? But unless investors are careful, they’ll never achieve their own financial
Being financially free requires: 1) Living beneath your means. You can’t spend more or equal to what you bring in and get ahead. 2) Making a budget and sticking to it. Be realistic and leave room for expenses to increase over time. Before you buy, count all the costs such as long-term maintenance and higher insurance premiums. 3) Basing your fulfillment on something other than your possessions. He who dies with the most toys doesn’t win, and no, you can’t take it with you.
Most would define financial freedom as having enough money to live comfortably for the rest of their lives. But how much is enough? Let’s take a look at two couples and get a better picture of what true financial freedom is and how you can achieve it.
With our first couple, the husband just retired from a successful career with $1,000,000 in his 401(k). They haven’t put any other money into savings.
Now that they’re retired with all this money at their disposal, their spending habits take over. They buy a new home, new car and generously help out their children. They don’t live on a budget and it is hard for them to see the impact their current decisions will have on their future.
This couple has to invest fairly aggressively and earn at least 6% to 7% just to keep up with their current standard of living. A sustainable retirement lifestyle should be based on a withdrawal rate of no more than 5%. Consistently earning enough to support a 7% withdrawal rate is difficult at best.
Our second couple, also newly retired, has always lived under a budget. Their household income was the same as that of the first couple, but because they’ve lived ‘beneath their means’ through the years, they have a larger nest egg of just over $1,600,000 to fund their retirement.
They’ve made some major, but wiser, purchases. Rather than building a new home on an expensive lot, they’ve chosen to do a more modest remodel on their existing home. They don’t mind driving older vehicles, and they help out their kids in more modest ways.
Because of the lifestyle they’ve chosen, both now and in the past, they only have to earn 3% on their money to maintain their standard of living. There is no need to take risks with their nest egg, because they don’t have to.
So which couple has achieved financial freedom? The friends and neighbors of these couples will say that it is Couple #1, because of their expensive lifestyle. The answer becomes more obvious, though, if we fast-forward a decade.
Couple #1 has to start tapping their principal to make ends meet. Their lavish lifestyle combined with rising costs for life’s necessities means they’re now facing the grim possibility of running out of money and becoming dependent on their children.
Couple #2 has faced rising costs, too, but the impact has been minimal. In fact, they’ve hardly changed their lifestyle at all. Since they are able to earn more than they actually spend, their nest egg has continued to grow. Not only do they have the peace of mind that they won’t outlive their savings, but they know they’ll be able to leave a nice inheritance for their children and grandchildren.
It’s obvious Couple #2 is financially free. Financial freedom isn’t about spending more, but worrying less. How much money you make doesn’t determine whether or not you will achieve financial freedom. It’s more about the relationship between your lifestyle and your income.
Couple #1 may try to solve their problem by taking higher risks to earn more on their investments. But they only have three choices in order to reach financial freedom. They have to save more, spend less and/or work longer. These are painful choices.
There isn’t a magic formula to becoming financially free. It is based on consistently making the proper choices. The security of having financial freedom is priceless and with a little effort, you can do it.
Have a financial question? I’ll personally answer it. Go to www.guardingyourwealth.com and click on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.
Looking for an energetic expert who is passionate about financial and wealth management? Mr. Voudrie is an excellent speaker who will excite and inspire your audience. Mr. Voudrie is available for a limited number of speaking engagements, television appearances and radio talk shows. For booking information, email e-mail protected from spam bots.
Related Articles can be found at www.guardingyourwealth.com under the Guarding Your Wealth Article Archive.
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Source : http://www.prweb.com/releases/2005/7/prweb260056.htm