Seven Strategies To Achieve Complete Financial Independence – Part One

How To Never Worry About Money Again.

When I say the words “complete financial independence” what image comes to mind for you? Do you envision ultra-rich people living on a yacht? Do you see international jet-setters with lavish homes on several continents? Do you picture high-end sports cars with luxurious appointments? In other words, do you see something straight out of an episode of the popular 1980’s TV series Lifestyles of the Rich and the Famous?

If so, you might be surprised at what I’m about to tell you. Right now, my organization is helping numerous clients work toward complete financial independence and almost none of them fit the description above. Robin Leach (if he were still alive) wouldn’t profile these people because they seem so, well, ordinary. And yet, they have something that most “rich” people don’t have – freedom from money worries. If you or someone you care about would like to achieve this, here are seven of my best ideas for doing so.

What Is Complete Financial Independence?

I’ll review the seven strategies in just a moment. But first I want to describe what it means to achieve complete financial independence. Despite what you might think, this is not about having a great big pile of money in the bank. It’s also not about lavish lifestyles, just the opposite, in fact. This is about achieving a certain position in life where:

• Your lifestyle is comfortable, but reasonable and disciplined.
• Your cash in-flows are substantially more than your cash out-flows monthly and annually.
• Your income sources and assets are diversified so that losses in any one area do not force you to alter your lifestyle: social security, cash, investments, pensions, real estate, etc. 
• Your income sources will continue to produce more than you need for the rest of your life.
• You may or may not be working for money, depending on what you want to do with your time.
• You have the right set of advisors around you to give you great counsel when you approach forks in the road.
• If necessary, and especially as you and your loved ones age, you have people you trust around you to help manage your financial affairs. 

People who arrive at this position in life really don’t have to think about money. This freedom allows them to do other things with their time and energy. And here is the good news as I see it. I believe most people can achieve this milestone. To do so, you’ll need to:

• Adopt a specific mindset regarding money.
• Follow certain disciplines over the long-term.
• Earn a decent annual income (although it’s probably lower than you might think) and be smart with it.

Most people in this country can do these three things. I’m not saying this will be easy and I also don’t think this can happen quickly for most people. It takes time and effort. But, after more than 20 years of advising people about how to achieve their financial goals, here is what I’ve learned. Your annual income and inheritance money have less to do with achieving complete financial independence than do your mindset and the disciplines I present below.

The Seven Strategies

After more than two decades of advising people about money matters, here are seven strategies that I believe can lead to complete financial independence:

1. Develop a healthy perspective regarding money – Stewardship.
2. Develop and follow a long-term financial plan.
3. Earn the highest income possible for as long as possible.
4. Live beneath your means.
5. Save and invest.
6. Protect your wealth as you grow it.
7. Be wise with inherited wealth.

In this first article on this topic, I’ll explore the first three strategies. Part two of this article will explore the other four strategies.

Strategy One: Develop A Healthy Perspective Regarding Money—Stewardship

It might seem strange that my first recommendation has to do with mindset and not money, per se. I find that how you think about money tends to determine how much you stress about it and what you do, and don’t do, with it. If you want to achieve complete financial independence, where you never worry about money again, step one is to take a stewardship perspective. This not only reduces stress, it increases the likelihood that you’ll make wise decisions and take necessary risks with your money.

Most people these days tend to see wealth in one of two ways: they own it or they manage it. I’ve discovered that those who believe they own their wealth try to hold on to it with all their might, like squeezing a handful of sand on a beach. If you believe this, I recommend that you attend the funeral of both a rich and a poor person. Then ask yourself how much wealth each one took with them. The answer, of course, is zero—for both the rich and the poor person. 

I believe a much healthier way to look at money, a way that leads to real happiness, is the same way we look at health. Do you own your health? Would you ever say: “I feel great today because my health is up 2.5%?” Of course not. Instead, healthy people roll out of bed in the morning and look forward to a great day—a day where they get to do the things they love to do.

In other words, health enables you to live a great life. But you don’t really own it. Instead, like wealth, you have to manage it and make great decisions with it or you won’t have it for very long. Just as we are stewards of our health by eating right, taking vitamins and exercising, we also need to be stewards of our wealth. We do this by adopting certain disciplines that help us be healthy with our money over time.

KEY TAKE AWAY

“Money Needs A Purpose In Your Life And Stockpiling Money Can Never Really Be That Purpose.”

One of the healthiest ways I’ve discovered to manage money is to understand this key idea: money needs a purpose. For each client I serve, that purpose is somewhat different. It might be paying for college, buying a home, taking a vacation or doing something else that they want to do. But stockpiling money can never really be the purpose. Some people can only feel good when their wealth is growing. When their accounts go down, for any reason, they worry. This causes many people who take an ownership view of wealth to avoid necessary risks, the kinds of risks that actually grow wealth. The vast majority of my clients will never achieve complete financial independence unless they take intelligent risks.

Stewards, on the other hand:

• Know that sometimes their storehouses will be full and at other times nearly empty. What’s important is that they have enough to live out their purpose.
• Take the sort of risks that can produce great returns down the road.
• Adopt practices that preserve their wealth for the long-term, even after they’re gone.
• Avoid frivolous behavior that drains wealth and teach their heirs to do the same.
• Rely upon professional advisors to give them great advice, especially when making big decisions.
• Use money to live out their purpose.

But here is the major difference I see between an ownership and stewardship mindset. Those who adopt an ownership mentality also seem to fear scarcity—no matter how much wealth they have. When asked “how much is enough,” their answer seems to be “more.” Those who adopt a stewardship mentality seem to embrace abundance. When asked how much is enough, they seem to know the answer to the penny almost. Why? Because they know how much it costs to live out their purpose. Any amount above and beyond what they need to live out their purpose makes them feel awash in abundance, as if they are truly rich.

Strategy Two: Develop And Follow A Long-Term Financial Plan

To achieve complete financial independence, you need a plan. Financial planning is so important to us, at Strait & Sound, that every client gets a financial plan, no matter how complex or simple their situation might be. The old saying is that if you don’t know where you’re going, any road will take you there. The financial plan, on the other hand, is the roadmap to your desired future, a future that’s free of money worries. There are a few things a great financial plan should do for you. 

First, it should envision where you want to be in 20-30 years (if your lifespan allows for this) and what your lifestyle will look like at that time. Where will you live? What will you do with your time? How will you manage your health? Who will you love? What are your monthly and annual income requirements to support that lifestyle? Now bear in mind that your vision of your future will likely morph over time. That’s perfectly fine. Our priorities tend to change as our circumstances change. But you need an initial vision to get started on your journey. 

Second, it should be based on hard data and all of the facts. Many of the clients I’ve served in the past have said that they have a financial plan. But when I ask to see their balance sheet, a crucial part of the financial plan, I often find that they don’t really have one or that there are material omissions on it. So my advice is to get all of your assets and liabilities on a balance sheet that shows you where you stand today. This is the starting point of your journey.

Third, it should be based on reasonable assumptions and projections. If your financial plan assumes that you will save 50% of your annual income every year, that may not be reasonable. A financial plan should be something that you actually can stick to over time. It should also be based on projections that take into account inflation and other factors that drain your wealth and investment returns that are in line with market averages. At Strait & Sound, we really don’t believe that long-term plans should be based on strategies that try to beat the market. This sort of behavior can lead to unnecessary and ill-advised risks. We believe time-in-market will outperform timing-the-market.

Fourth, it should prioritize those areas where you have control: income production, saving and spending. Like you, we don’t control the stock market or macro-economic conditions. There are many things in life that we don’t control. But your plan should prioritize those areas that are within your ability to manage. I’ll talk more about this in the section on living beneath your means.

A final note about financial plans: they’ll do you no good unless you follow them over time. Financial plans are a snapshot of strategies and assumptions based on a moment in time. But you shouldn’t feel like this is a one-and-done process. Financial plans that sit on a shelf don’t help anyone. This is why we use our client’s financial plans on a regular basis to chart their progress toward complete financial independence.

Strategy Three: Earn The Highest Income Possible For As Long As Possible

This piece of advice isn’t applicable to everyone. But many of our clients were not born with a silver spoon in their mouths. For them, there will be no inheritance wealth in the future. This means that they will have to create the conditions that allow for complete financial independence. It is nearly impossible for people in this situation to do so unless they earn an income that is well above their annual living expenses. They have to save and invest their way to freedom.

This advice is also applicable for most of my first-generation immigrant clients. Many of them have no choice but to earn a high income because they will not inherit wealth. They brought almost nothing to this country but their dreams and ambition. However, they can change the trajectory of their lives and their heir’s lives by earning a good income and being wise with it.

I also believe it’s important to earn an income for as long as possible. Early retirement is desirable for some people. But those who earn an income that is even as little as 50% of what they earned at their peak help preserve their wealth for the long-term. The longer you can put off retirement, the better, financially speaking.

More ideas In Part Two Of This Article

The seven strategies below account for millions of dollars I’ve helped my clients secure as they work toward complete financial independence:

1. Develop a healthy perspective regarding money – Stewardship.
2. Develop and follow a long-term financial plan.
3. Earn the highest income possible for as long as possible.
4. Live beneath your means.
5. Save and invest.
6. Protect your wealth as you grow it.
7. Be wise with inherited wealth.

In my next article on this topic, I’ll explore the remaining four strategies. If achieving complete financial independence is important to you, I think you’ll really enjoy those perspectives. 

About The Author

Todd Sixt is the CEO of Strait & Sound. He is a successful and seasoned leader of financial service teams. At his core, he believes in excellence and is deeply committed to helping clients achieve complete financial independence. In an industry known for overwhelming people, Todd prefers straightforward dialogue and strategies that clients can commit to for the long haul. He knows how important financial planning is to realizing long-term goals. He also knows that most clients don’t want to become investment experts themselves but instead want to work with a financial expert who will be a partner for life.