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7/3/2013

Celebrate [financial] Independence

One truly valuable outcome of working with a financial planner is fully articulating your family's goals.  In the general sense, everyone has an idea of saving for retirement, maybe buying a vacation home, and passing along some financial comfort to the next generation.  But too often people stop at these general ideas and do not take the time to really define the financial future they desire.
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People seem almost afraid to name one goal in particular, that of achieving a measure of freedom from financial concern, aka "financial independence".  One client remarked during a recent conversation that she was primarily concerned with solvency, followed by security, and then we could set our sights higher.  The "higher" may very well be independence.

For this discussion, let's make a distinction between "independently wealthy" and "financially independent".  Per my thinking, the former describes people who possess more wealth than they can spend, while the latter is a more readily attainable state.  If we can agree that "financially independent" describes people who have sufficient resources to meet their needs, then this type of independence becomes a goal we can plan for.
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The fundamental approach to achieving financial independence can be summed up in this one graphic: lowering your overall expenses and raising your overall savings.  There are many details rolled into this concept, but this one action (with two outcomes) is the most powerful piece of the process.
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Assuming a steady income, cutting expenses automatically raises your savings rate.  And by taking a more intentional approach to household spending, you can chart a path to a place where your money use actually reflects your values.

Ultimately, in the pursuit of financial independence, the goal is to have enough money set aside and working hard for you 24 / 7 that the produce of those savings is sufficient to cover your core budget.

Financial independence doesn't mean you have to stop working and go sit on chair in the lawn every day, and as defined here it doesn't mean a life of luxury hotels and shopping sprees; what it does mean is an opportunity to work at the things you value and a measure of freedom from mundane financial stress.

So while we all take the July 4 holiday as a time to appreciate our great country and all that it represents, on July 5 maybe take a moment to consider whether financial independence is a goal worth pursuing.

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    Author

    David R Wattenbarger, president of DRW Financial

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