Let Financial Freedom Ring
“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
freedom.
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