Bruce Helmer and Peg Webb

Our most recent column focused on the topic of financial wellness and how to achieve it through things like becoming more financially literate, tracking spending, and monitoring your asset allocation policy once a year, among other activities.

Today’s article discusses the whole point of achieving financial wellness, which is to become financially independent.

Financial independence remains a top goal for 67% of Americans, according to a 2023 survey from Empower, a retirement services provider. While financial independence means different things to different people, the survey revealed that most people would consider themselves financially independent by no longer needing to receive money from family and friends (47%), or reaching a certain net worth (44%). Others define financial independence as having enough savings and investments to provide lifetime income.

And we know the way to achieve financial independence is by saving more, spending less, and investing well to meet your goals. On paper, it sounds easy. But it isn’t always. Life gets in the way.

Your financial independence roadmap

Financial independence is a journey, with many obstacles, unexpected events, and opportunities along the way. A big part of the process is committing to deferred gratification, which isn’t something we’re genetically wired to do. It takes patience and hard work to visualize what the road to financial independence looks like.

Here are a few tips to help:

How you spend your time and money needs to be connected to your highest values, because “time IS money.” As Morgan Housel so succinctly puts it in his book, “The Psychology of Money:” “The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. It’s the highest dividend money pays.”

For example, let’s say you like camping or fishing with your friends, but you value spending time with family more. Then maybe buying that RV or bass boat doesn’t square with what you value the most (especially if your family doesn’t care for the outdoors). Making more intentional spending decisions is a way to have more control over your life, money, and time.

It is also one of the reasons we harp on people to set up or add to an emergency fund so that your desired lifestyle isn’t threatened by the unexpected twists and turns that life inevitably puts in front of you. Financial independence includes having a financial “cushion” around your money to avoid a worst-case scenario that can affect you for years, or even decades, such as a serious illness or injury that keeps you out of work while creating huge medial expenses. You should have between three and six months’ worth of living expenses socked away in a safe, highly liquid money market or cash management account, especially if your job is not secure, or there’s a risk of disability in your family, or if you have an unexpected car or home repair. You don’t need an instant emergency fund on day one. Start small and build it up over time.

Finally, we recommend that our clients be open to pursuing experiences in their lives that are financially freeing: Financial independence means being able to say “yes” to one or more of them. Want to take a year off to travel? Start a side business? Help a family member? Financial independence can help make it happen. (The power to say “no” is made possible by being financially independent, too — such as leaving a job or relationship that isn’t making you happy.)

Begin planning today

Achieving financial independence is not rocket science. It just takes some time, a plan, and discipline. Here are the key inputs:

• Calculate your net savings rate. Are you setting aside 15% or 20% of your income and keeping expenses and debt levels low relative to your income and assets? If so, you’ll be able to achieve financial independence faster than someone who is only saving 3% or 5% and spending a lot on unnecessary items.

• Quantify current and future spending. Compare what you’re spending today on “needs” and “wants” and project how that may change when you’re no longer working. Keep in mind that most people’s expenses go up, not down, in the early years of retirement, then level off or decline, and then increase as health care needs arise later in life.

• Calculate how much you need to be financially independent. Your financial plan should build off your current income and expenses and assets/liabilities to provide a detailed analysis of your cash flow needs in retirement. There are a number of good online retirement calculators that can estimate how much money you should set aside each month to pursue your lifelong goals. (Wealth Enhancement Group has a nifty one at wealthenhancement.com/retirementcalculator.)

By having a well-constructed financial plan by working with an experienced and knowledgeable adviser, and by being willing to defer immediate gratification of your financial “wants,” you’ll be able to pursue the goals you have set for the future — the essence of happiness.

Related Articles

Your Money: Practicing Financial Wellness, a holistic approach

Your Money: Is your asset allocation applicable to today’s markets?

Your Money: How the financial adviser’s role has evolved

Your Money: Women and wealth: a values-based approach to planning

Your Money: Don’t treat your 401(k) like an ATM

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on WCCO 830 AM on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com. Securities offered through LPL Financial, member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.