Everyone wants the simple solution, the silver bullet for a successful financial future. The reality is, there isn’t one. That’s not bad – it just requires taking a deeper dive into what your life is now and what factors will contribute to it in the future. Most financial plans are designed under ideal circumstances. No headwinds, low tax rates, positive markets every single year, inflation at 2 percent, no planned obsolescence, no technological change. But that’s not the way the world works.
There are a number of steps or factors that I require every client to break down and get honest about before they can expect to achieve financial freedom. Consider each of these for yourself and how prepared you are to give a well-thought-out answer for each.
- Income. What is it today, what was it in the past, and realistically where do you see it ending up giving what you do for a living? Do you have future plans that will disrupt this – like starting a business or changing careers?
- Taxes. What kind of taxes do you pay? Unfortunately, many people don’t even know how much they paid. I’ve asked that question a few hundred times in the last few years: “How much tax did you pay last year?” “I have no idea,” they answer. They don’t know how much money is going out the door to federal income taxes, FICA, state, the Medicare tax.
- Savings/Spending. What kind of lifestyle do you lead? What are your obligations and priorities? Where are you saving money and how much? Are you part of a plan where the company you work for matches to a certain point or percentage? What is that? Again, many have an idea of where they’re saving money, but they don’t know really where they’re saving money. They don’t understand debt structure. They don’t know what their lifestyle is. Income minus tax, minus savings, minus debt structure should equal lifestyle, but if it’s credit card debt, it probably doesn’t.
- Future obligations. What is your family structure and dynamic? Whether it’s kids, siblings, parents, what are potential needs that will arise? I often hear, “I’ve got four kids and I want to put each kid through college, and I want to set them up, and I want to give them a wedding gift.” Well, how much? At what point is that going to come out? What impact is that going to have on your financial future? Educate all your kids but not have any money left over for retirement—that’s not a good strategy, right?
These are critical aspects of life that need to be addressed. Many are aware of them on the surface, but the deeper you get, you realize there is more to plan and be prepared for. Financial freedom comes down to this: planning and preparation. Being prepared means you’ve adequately addressed each of the above-mentioned areas that will require funds. It’s a plan that must be executed, and then revisited on a regular basis to review and update it, making changes and modifications to meet your unique circumstances. It’s a process that needs to happen continually, a repeating loop. You can achieve what you hope to, but you need to be clear and honest about what those goals are and the factors that surround your unique life. Learn more by visiting, http://john-smallwood.amsystem.wpengine.com/book/