Take Charge of Your Financial Independence this Summer

July 17, 2015

Summer is full of barbeques, get-togethers, and celebrations regarding our independence, which makes it the prefect time to think about your own financial independence. You do everything in your power to provide for loved ones and to ensure their future stability but have you ever thought about how you’ll plan for your own future? Financial independence typically means that you’ve accumulated enough in savings to support your living expenses for the rest of your life hopefully without having to work any more than you would like.

We see many ways to achieve independence from our work with successful executives, entrepreneurs and even inheritors. But all of these paths start with living on less than we earn and regularly putting money into savings. Over time, it is nice to enjoy part of your raises and even bonuses perhaps, but a portion of this also has to regularly go into savings. We have seen even more success when you live on your regular income and primarily “bank” all bonuses and payouts.

Once you’ve been regularly saving and building your nest egg, the way to determine if you have reached financial independence is to assess your asset accumulation and reduce it by your monthly expenses. See how many years you can deduct. Even though your savings will continue to grow, your original nest egg should cover 20x your expenses right from the start.   As your portfolio then grows, some income can come from dividends and interest from owning securities such as stocks and bonds. These investments will generate income over time and the capital appreciation of your investments will ultimately build your wealth.

No matter your current level of savings, we can all work towards financial independence. It’s important to start with long-term planning. By spending less than you earn each year and adjusting expenses accordingly you’ll be on your way. We all eventually hope to achieve a level of financial independence, so no matter what that means to your individual situation, it’s important to adjust accordingly.