Have you ever considered what it would mean to be ‘financially free’? Would you sell your business or leave your job so that you had more time to relax with friends and family, travel, buy that Ferrari you’ve always wanted, or otherwise pursue leisure activities? Would you keep your business or your job, but adopt a role that’s less hands-on so that you had more free time?
All of these (and others) are exciting options once you achieve financial freedom, but you have to get there first. First things first, where is ‘there’?
Considering the following should guide your thinking:
- What you’ll do after you leave your business or job
Will you simply want to retire and enjoy your family? Would you prefer to travel? Are you interested in a hobby that can be expensive, like flying? Would you like to buy a pricey “toy”, like a new luxury sports car? Or, would you like to work but start your own (or another) business?
Some lifestyle choices are more expensive than others; the one you choose will affect your financial planning. You’ll need to work longer if you want more expensive lifestyle, but can retire sooner if you want a simple lifestyle that just involves spending time with your family.
- Your life expectancy
This is something no one wants to think about, but you need to estimate how long you’ll live after retirement. It’s important to know how much money you’ll need to sustain your desired lifestyle for those years.
If you plan to retire at 65, you’ll need to establish a plan that will let you and your spouse live comfortably for 20 to 25 years, plus some cushioning for unexpected expenses and cost-of-living adjustments.
We recommend that you assume you’ll live to be 100 just to be safe. Remember, however, that life expectancy averages are just that, average, and you’re not. Work with a number of potential outcomes to figure out how long you’ll need to make your savings last.
Conversely, you might be surprised by the number of people who have more than adequate resources built up for retirement, and rather than worrying about running out of money, need support transitioning these resources to their loved ones in the most tax efficient manner possible.
Either way, it’s about formulating a plan for the money you have, with the ambitions you hold.
- The financial vehicles you use
Savings, annuities, and investments are different kinds of financial vehicles that can help you save for your goals and do so intelligently. For example, your savings may get you through the first years of your retirement, while annuities and other investment vehicles can pay for retirement later. You can get help if you need it to decide which is best for you.
Stick to Your Plan – But Have Fun!
Once you’ve got your financial planning taken care of, make sure you stick to it.
However, remember that your financial planning is specifically meant to release you to do exactly what you want. Don’t be afraid to spend wisely based on your plan – and have fun doing so. Go on holiday, buy that Ferrari, or take those flying lessons when you retire.
Just be sure you’ve planned well, and you’ll be able to truly enjoy your financial freedom.