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5 Reasons to Pursue Financial Independence

5 Reasons to Pursue Financial Independence

    Do you crave a life without financial constraints?

    Too often our ability to make progress towards our passions has been limited by the “rat race.” In the rat race, we work for our employers, the government by paying taxes, and the lenders (ie, of our mortgages, credit cards, car loans, and student loans).

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    Usually, our own passions are dead last, relegated to when we can find free time — if they get focused on at all.

    Fortunately, you can have a very different plan. Here are five reasons to pursue financial independence…even if you love your job.

    Financial Independence is Important Because Job Security is an Illusion

    Financial vulnerability often motivates entrepreneurs. Many entrepreneurs work ridiculous hours, risk their entire life savings, and neglect important relationships for a dream with no promise of success. What sane person would take such risks?

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    Well, one thing to note is that regardless of whether you are self-employed, a traditional employee, or a business owner, you are in business for yourself. The primary distinction is who are your customers? For a typical employee, your “customer” is your boss. He or she is the one who is purchasing your services. However, if you own a business, you have many customers (or bosses).

    Accordingly, many entrepreneurs feel it is inherently more risky to have a single boss than having many “bosses.” For example, if you own a thriving business where you can control costs, growth, and marketing, then a whole bunch of customers would have to effectively “fire” you before you were forced out of a “job.” A business owner’s sustenance is no longer determined by single person’s opinion or by shareholders who may not even know his or her name. This is why financial independence is so important to traditional employees: no amount of education or experience can guarantee that even the most talented and faithful workers won’t be unemployed by the end of business tomorrow. If you are an employee, the reality is that you are constantly interviewing for your job.

    Financial Independence is Important Because it Means You Are No Longer Trapped in the “Rat Race”

    Sometimes there is an outright disdain for work nowadays. We marvel at those who retire early. However, I have come to the conclusion that the idea of leaving the “rat race” excites me infinitely more than the idea of retirement. For example, there’s an internal yearning to make a difference that would be very hard to achieve if your idea of retirement is sitting on the couch everyday watching The Bold and the Beautiful. Stephen Covey said that we all want to “live, to love, to learn, and to leave a legacy.” The right work can help us fulfill such aspirations.

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    Rather than eliminating work, I suspect that many people crave eliminating their need of provision clouding every decision that they make, stopping them from chasing their dreams, and robbing them from spending time with the people who matter most. A financially free person possesses insights and goals untainted by concern for sustenance, can pursue opportunities that are generally perceived as risky but high reward, and can control his or her time in ways those stuck working nine-to-five jobs can only dream of.

    Financial Independence is Important Because It Means You Are in an Even Better Position to Help Others

    It was Margaret Thatcher — The Iron Lady — who said that “no one would have remembered the Good Samaritan if he only had good intentions.” Some people piously say that they just want enough for their families. It’s as if they have outright indignation for anyone who craves more. Ironically, they completely miss how ridiculously selfish they sound.

    If we want to live extraordinarily, then we often have to look beyond our own four walls to see who we can serve. Just because charity starts at the home doesn’t mean it should stop there. One reason it is so important to expand your vision is that it will often be the stimulus prompting others to get involved in your dream. For example, part of the reason Oprah, Rachael Ray, and Dr. Oz are so successful is because they “major” in helping others. It is the problems that you solve for others that serve as the doors to your next promotion. One of the benefits of being financially free is that you are also free to tackle some really complex problems!

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    Financial Independence is Important Because it Means Fun is Amplified

    While happiness can’t be bought, fun can. I personally have no problem if someone wants to walk into his dream home or drive his dream vehicle, as long as he has been financially responsible. Recently, billionaire heiress Petra Eclestone purchased the old Aaron Spelling 57,000 square foot mansion for a staggering $85,000,000. In an interview, one reporter asked her response to the many detractors arguing that there were so many better uses for her family’s money. She replied she was extremely active and generous to her chosen charities and felt no responsibility to stop living her life based on what others have to say. One takeaway point was that just because you can have fun with less doesn’t mean you have too. Money is merely a tool. It only amplifies what’s already there, so if you have fun and give with your existing income and assets, just imagine what fun you can have and charitable deeds you can perform if all your financial resources were amplified.

    Financial Independence is Important Because it Increases Your Ability to Structure Work to Suit You

    Of course, choosing or creating the right kind of work is not limited to those who are financially independent. However, the two do appear to be linked. In the Millionaire’s Mind, Thomas Stanley argued that millionaires are more likely to have chosen work that uniquely suits them; the right work serves as a competitive advantage. Being financially independent means that you have more time and resources to explore your skills and abilities, your personality, and your passions and dreams and decide how best to incorporate that into your work; you have all the more opportunity to make sure that you get it right.

    Recently, there has been an explosive increase in people exploring alternative work models, such as freelance work, independent contractors, consulting, distributorships, licensing, etc. Just because one may not be a good fit doesn’t mean that you can’t find or create an authentic fit with another model. Be mindful regarding your work. Not only may your financial independence be determined by this decision but also your sanity!

    Closing Thoughts

    Not only are financial independence and building phenomenal wealth laudable goals, they are also achievable. Consider that when you are inundated with opportunities to forsake your budget for purchases misaligned with your values. Consider that additionally when market volatility and doom pundits make you want to duck and hide rather than invest. Most millionaires consistently invest at least 15% of their incomes, despite alluring sales and tumultuous economic climates. Follow that example when you face difficult financial decisions; choose freedom today.

    (Photo credit: Growing Money via Shutterstock)

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    Published on May 7, 2019

    How to Invest for Retirement (The Smart and Stress-Free Way)

    How to Invest for Retirement (The Smart and Stress-Free Way)

    When it comes to stocks, I bet you feel like you have no idea what you’re doing.

    Everyone who’s not a financial expert has been there. I’ve been there. But, time is passing and you need to be crystal clear with how you’re investing for your retirement.

    Otherwise, it’s back to work until you can afford not to. So, how can you invest for retirement when you’re not a financial expert?

    You take the time to learn the fundamentals well. If you do, you can grow your wealth and retire happy. The best part is that you don’t need to be a financial expert to make smart investment decisions.

    Here’s how to invest for retirement the smart and stress-free way:

    1. Know Clearly Why You Invest

    Odds are you already know why should invest for retirement.

    But, maybe you know the wrong reasons. It’s time you get clear on why you’d like to retire. Here are some questions to help you get started:

    • Will you spend more time with your family?
    • What does retirement mean to you?
    • Are you looking to launch that business you’ve been holding off for years?

    Everyone wants to retire but not for the same reasons. Once you’re clear for why retirement is important for you, you’ll focus on making it happen.

    Investing in the stock market allows you to take advantage of compound interest.[1] All this means is that your money earns money on top of its interest. A reason why investment in the stock market is one of the best ways to plan for retirement.

    2. Figure out When to Invest

    “The best time to plant a tree was 20 years ago. The second best time is now.”– Chinese Proverb

    It’s true if you’d had started investing when you were 10 years old, you’d have a lot more money than you do today.

    The reality is that most people don’t start investing until it’s too late. So, if you’re currently waiting for the perfect time to start an investment, it would be today. Open your calendar and block out 2 to 3 hours to choose how you’ll invest for retirement.

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    A quick way to get a snapshot of where you stand is to use Personal Capital. Input all your personal information and spend some time setting your retirement goals. Once completed, you’ll know where you stand with your retirement.

    Having a savings account for retirement isn’t planning for retirement. Why? Your money loses value when you factor in US inflation.[2]

    3. Evaluate Your Risk Tolerance to Create the Perfect Portfolio

    Investing your money well depends on your emotions.

    Why?

    Because when the market drops most people panic and withdraw their money. On average, the US stock market yields an annual 6% to 7% ROI (return on your investment.) But, this won’t happen if you’re worried about short-term loses.

    Before you invest your next dollar, know your risk tolerance.[3] Your risk tolerance determines the number of risky and safe investments you’d have.

    Regardless of your investing style, you need to view investing for retirement as a long term game. Know that some years you’ll lose money but recoup this in the long-term.

    Avoid watching market-related new. Also, create a double authentication to log in your investment account. This way you’re less likely to withdraw your money.

    4. Open a Reliable Retirement Account

    Depending on your circumstance, you may need to open a new brokerage account. This is the account is where you’ll invest your money.

    If you’re currently working for a company, odds are that they offer a 410K investing account. If so, here’s where you’ll invest most of your money. The only problem with this is that you’re limited to the stock options that are available.

    You do have the option to open a separate IRA (individual retirement account.) Here are some of the best brokers:

    1. Vanguard
    2. TD Ameritrade
    3. Charles Schwab

    5. Challenge Yourself to Invest Consistently

    Committing to invest for retirement is hard, but continuing to do so is harder.

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    Once you’ve started investment for your retirement, you run at risk from stopping. Often you’ll want to contribute less, so you’d have more money in your pocket.

    That’s why it’s important that you create a budget that allows you to invest each month. If you’re working for a company, you can set a percentage for the amount you’d like to contribute each month. Most people by default contribute 1% but aim to contribute 10% to 15%.

    Be the judge for how much you can afford to contribute after covering important expenses. To stay motivated, use Personal Capital to view your net worth.

    A benefit to contributing money to your retirement account is not taxed. For example, if you earn $100 and invest 10%, you’d contribute $10, then get taxed on the remaining $90. As of 2019, the most you’re able to contribute towards your 401K is 19K but this can change.

    6. Consider Where to Invest Your Money

    The most common way to invest your money is in stocks, but it’s not the only way. Here are other ways to invest:

    Robo Advisors

    Robo-advisors[4] are fancy algorithms that’ll choose the best investments for you. Sites like Wealthfront make it easy for first-time investors to invest their money. You’d input information about yourself and set your risk tolerance.

    Then, set your monthly contribution amount and your robo-advisor would do the rest. Robo-advisors charge a fee to manage your money, but less than regular advisors.

    Bonds

    Think of bonds as “IOUs” to whomever you buy them from.

    Essentially, you’re lending money and charging interest. Like stocks, not all bonds are equal. Some will be riskier than others depending on their rating.

    Here are the different types of bond categories:[5]

    1. Treasury bonds
    2. Government bonds
    3. Corporate bonds
    4. Foreign bonds
    5. Mortgage-backed bonds
    6. Municipal bonds

    Mutual Funds

    Picture a group of people dumping all their money in a jar that’s managed by a professional. This is how mutual funds work. The fund manager manages the money looking to earn capital gains (interest.)

    One of the best types of mutual funds is index funds. Since these funds don’t try to beat the market and instead follow it, they need less research. Because of this they often charge the lowest fees and yield the best long-term results.

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    Real Estate

    Yes, buying a home is an investment when done correctly.

    Imagine buying a home and using it as a rental property. After repairing it, you receive a monthly surplus check of $100 to $200.

    This may not sound like a lot, but repeat this process enough times and you’d earn a large amount of passive income. That’s why real estate is one of the best investments to not only retire but become wealthy.

    But, it requires a lot of money to start and you should expect losing money along the way as you learn the process.

    Savings Accounts

    Your money can still grow in a savings account. Nowadays most online banks offer a 2% annual return. Although the average inflation is higher your money will be available when you need it.

    7. Master Disincline to Dodge Short Success

    Investing for retirement is a long-term strategy. That’s why you need to master delayed gratification. All this means is delaying short-term pleasure for something bigger in the future. Research shows that those who have delayed gratification are more successful.[6]

    So how can you master delayed gratification?

    By building your discipline.

    Think back to what retirement means to you. A clear purpose will help you avoid withdrawing your money during a market downturn. It’ll help you contribute more towards retirement when you’d want to waste it instead.

    Your journey towards retirement will be long, so reward yourself along the way. Choose a reward that’s relevant and meaningful, so that you reinforce positive behavior. For example, after contributing more towards retirement, treat yourself to dinner.

    8. Aggressively Invest on This One Investment

    I’ve mentioned several types of investments but haven’t covered the most important one.

    It sounds cliche but here’s why you’re your best investment towards retirement. The more you know, the more money you’ll be able to make. The more good habits you adopt, the more secure your retirement will be.

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    More importantly, investing in yourself is an investment that no one can take away. There’s no market downturn nor tragic circumstance that’ll wipe your knowledge and experience.

    But, how can you invest yourself?

    Reading books, blogs, and anything that’ll help you learn new topics daily. Listen to podcasts and audiobooks on your commute to/from work.

    Save money to buy courses and hire coaches. I used to believe hiring coaches was a waste of money when I could learn the subject alone.

    But, coaches see your blind spots and hold you accountable. Hiring the right coach will help you achieve your goals faster than you would’ve alone.

    Retire Happy with Excess Money

    The key to a secure financial future doesn’t only belong to financial experts.

    It’s possible for you and I. What if you were able to retire earlier than most people and weren’t a financial planner? What if you were able to focus on what you enjoy doing the most while your money was working hard for you?

    I know this sounds impossible now, but the truth is you’re capable of taking charge of your retirement. I’m not a financial expert but I’ve learned how to invest my money by reading books and learning from others.

    Investing your money is scary. So start small and invest a small amount of your money with a robo-advisor. Feel your money drop and rise for a month or two. Then, invest more and keep this up until you’re aggressively saving for retirement.

    One day, you’ll wake up with a net worth you’re proud of – confident about your retirement. You now know a few strategies you can use to invest in your retirement. Will you take action to retire happy?

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    Featured photo credit: Matthew Bennett via unsplash.com

    Reference

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