Draft Your Own Declaration of Financial Independence
250 years ago, a group of colonists declared their freedom from British rule. They didn’t have the money, manpower, or infrastructure to back it up, but what they did have was a plan. This is the mindset that created our nation, and if we take a little bit of that inspiration and apply it to our personal finances, we can each achieve something great!
Define your Declaration
Now, Financial Freedom varies slightly from the template our forefathers set up. Your financial goals likely don’t include overthrowing a tyrannical ruler in the name of equality.
Financial Freedom to someone who’s recently retired may consist of not having to work and having the investments, savings, and passive income to cover cost of living and expenses. Financial Freedom to someone who has just started a family may be having a job that pays enough to cover daily expenses and provides a surplus for future savings. And for others still, it’s about selling everything you own, buying an RV, and visiting all the national parks. To most of us, Financial Freedom is about not having our lives ruled by financial constraints.
Take a few moments and think about what Financial Freedom would mean to you.
If money was not a factor, what would you want your life to look like?
How would these goals evolve as you get older?
This should be your very own ‘city upon a hill’. When you’re making choices that involve your finances, you can ask yourself, “Is this going to help me reach my goals?” Like the Declaration of Independence, having a framework for what you eventually want to achieve is the first step in achieving Financial Freedom.
The Four Pillars of Financial Freedom
Budget
The first step is knowing where you are currently, and understanding your budget is the best way to do that. A basic budgeting framework is 50/30/20. 50% of your pay should go to needs (rent, car payments, grocery), 30% should go to wants (dining out, travel, hobbies) and 20% should go to debt repayment. You should change these percentages to match your current situation, but with a consistent budget in place, you’re able to predict your expenses with greater accuracy, which helps you plan your future. When you have a good grasp on your inflows and outflows, you’ll know where you can allocate more or less money, and if you have any shortcomings that you’ll need to overcome.
Emergency Fund
With a budget in place, it’s important to start building an emergency fund. Nothing can ruin your finances faster than a large, unexpected expense. Having an emergency fund can turn a potentially ruinous expense into a manageable one. A good guideline for an emergency fund is to have enough money to cover 3-6 months of your expenses saved in an easily accessible account. Like all aspects of Financial Freedom, this will take some time, but your emergency fund is the bedrock of your financial security, so make this a priority.
Debt Elimination
All men are created equal… but not all debt. As we said earlier, financial freedom looks different to everyone, and you can certainly be financially free with a car payment and a mortgage, but certain debts like credit card bills and high-interest student loan payments can put a serious dampener on your pursuit of happiness. Focusing on eliminating your highest-interest debt first can really help relieve some financial pressure. If you want a more in-depth discussion on these topics, watch our Budgeting and Debt Elimination webinar or our Student Loan webinar.
Retirement Savings
With your budget, emergency savings and debt under control, we can now look forward to the future. For most of us, the biggest financial goal we’ll undertake in our lives is saving towards retirement, but saving towards some distant goal can sometimes be hard to conceptualize. So, let’s try to make it real by using real numbers. A very quick method of determining how much savings you’ll need for retirement is to multiply your expenses by 25. That number is now your retirement independence number.
This comes from a concept called the 4% rule. The idea is that a retiree who withdraws 4% of their portfolio in the first year, and adjusts that amount for inflation each year after, has a good chance of not running out of money over a 30-year retirement. Twenty-five times your annual expenses is just the flip side of 4%. For example, if your annual expenses are $50,000 you’ll need to save about $1.25 million. Keep in mind, this is just a starting point, and your Shepherd advisor can help give you a more accurate model of your situation.
Your retirement number may seem like a lofty goal, but when you have a target, retirement stops being an abstract worry and starts being a quick calculation. Instead of asking, “Am I saving enough?”, you could say, “At my current savings rate, when do I hit the number?” Every one dollar of consistent spending results in having to save twenty-five dollars for retirement; so, when you’re thinking about upsizing your house, car, etc. think about if you’re overextending yourself and impacting your financial freedom.
The Pursuit of Happiness
Financial freedom isn’t a finish line; it’s the life you’re building toward. Whether that means retiring early, owning a home, traveling, or simply living without financial anxiety, the goal is yours to define! The four pillars we’ve covered – budgeting, emergency fund, managing debt, and saving for retirement — aren’t restrictions. They’re the framework that makes your version of freedom possible.
You don’t have to figure it out alone. Your advisors at Shepherd Financial are here to help you draft your declaration of financial independence — whether that’s creating a budget, building a retirement plan, or just having a conversation about your goals. Give us a call at 844.975.4015 or email us at ShepFinTeam@Shepherdfin.com.
Here’s to 250 years of freedom, and to the work of building your own!