I’m here to tell you that you are responsible for the success or failure of achieving your financial independence. I say this because you control two of the three most important components: saving and spending. As you manage your responsibilities and manage the family’s business, think about saving in terms of “pay yourself first.”
Then, make a budget. In the end, it’s all about spending, no conversation about spending is complete unless you talk about debt. To be clear, debt is to be avoided, if possible. Sometimes, it can’t be avoided so I distinguish good debt from bad debt. Good debt is low-cost financing that is used to assist in the acquisition of an asset that you expect to appreciate over time and the cost of which would exceed most buyers’ ability to pay cash, such as a home. Destructive debt includes any debt used to buy consumer assets (those that go down in value through use or passage of time), such as furniture, automobiles, technology, toys, clothing, etc.
So, how do you achieve financial independence? In our business, we see a lot of confusion around personal financial management, so I suggest two strategies:
1. Prepare a plan that maps to your goals.
2. Build a liquid portfolio first.
Remember, the responsibility for achieving your financial independence rests with you.
When you’ve achieved a level of financial independence through wealth, it’s important to remember that spending still matters, as does understanding debt and taxes. Risk management and protecting your assets often requires a more customized solution. But when you understand your wealth and what you can comfortably spend, you are better positioned to maintain it. Each person and family has their own set of unique challenges and long-term goals —which your individual plan should acknowledge. When dealing with generational wealth, financial education is important to pass along to younger family members who may not understand how to be financially independent despite their level of wealth. Teaching them to be good stewards of their resources starts with understanding the fundamentals of spending, savings and debt.
Although goals and plans may be different family to family, the theme remains the same. Understanding your wealth and then knowing how to make sound financial decisions is the greatest measure of financial independence.
So, What Does It All Mean?
We’ve covered a lot in this article: striking a balance, competing in highly pressured environments or industries, finding a way to give back and understanding financial independence. It will always be a challenge to strike the right balance—you are not going to have it all at the same time, but you can come up with your own formula for happiness and success.