A well-crafted financial freedom plan should empower you rather than limit you.
Similar to a passing trend in dieting, budgeting alone cannot help you build wealth or feel financially secure.
Budgeting often focuses on the things you can’t have and the sacrifices you need to make, leaving you to believe that someday in the distant future you can start enjoying your life.
Time is your most valuable asset when it comes to achieving financial independence, and budgeting can often consume precious time without providing significant benefits.
The Traditional Path to Independence
Our aversion to managing our finances stems from the traditional approach to financial planning. Society conditions us to believe that we must achieve certain milestones in life, such as finding a job after school or university, falling in love, buying our first home, getting married, having a family, purchasing a larger home, and if we manage to budget our spending to save and invest after paying taxes, we might accumulate enough to retire.
Unfortunately, retirement has become a dreaded concept, even more so than living on a budget.
As a result, we tend to neglect our financial well-being until we reach a point where we believe we have “enough” to escape the constraints of a budget, or because we simply never want to retire.
The good news is that it doesn’t have to be this way, and achieving financial freedom may be closer than you think.
You Can Retain 1.5% - 3% of Your Income Annually!
Financial advisors are there to help you create the security you want and need and keep you up to date with the moving financial landscape. This money pyramid will be relevant no matter what the changes.
Recent research conducted by the self-investment platform Vanguard reveals that individuals who implement financial planning throughout their lives tend to be 1.5% to 3% better off each year compared to those who don’t.
What Vanguard are referring to here are private individuals that utilise their personal allowances each year on average end up being better off due to utilising their personal tax allowances and incentives.
This is a significant advantage!
Recent research conducted by the self-investment platform Vanguard reveals that individuals who implement financial planning throughout their lives tend to be 1.5% to 3% better off each year compared to those who don’t.
What Vanguard are referring to here are private individuals that utilise their personal allowances each year on average end up being better off due to utilising their personal tax allowances and incentives.
This is a significant advantage!
Financial planning isn’t about adhering to a strict budget. It’s not about limiting your lifestyle, nor does it solely involve putting all your surplus income into a pension or long-term investment for retirement. Instead, it revolves around strategically managing every pound you earn to support a lifestyle you love while maximising your annual tax allowances and incentives.
And with annual tax exemptions and allowances, it is “use it or lose it”!
When you accumulate wealth, you exchange your time, energy, and expertise for money. If you intend to spend your earnings on your current or short-term lifestyle, then it’s crucial to pay taxes on that portion of your income. However, if you have surplus earnings that you don’t need for immediate expenses, taking action to shield that income from taxes in the year you earn allows you to preserve your wealth for future expenditures.
Eliminate the Middleman
Moreover, you don’t need a financial advisor to sell you a pension or investment product to implement your financial planning strategy.
You can easily establish pensions and investments through various self-investment platforms or robo-advisory services specifically designed by specialist wealth managers to empower individuals like you to take charge of their financial future—with or without assistance.
By bypassing intermediaries, you can potentially save on average an extra 1% in the fees you often pay for financial advice by becoming your own financial planner!
Independent Wealth Spend, Save, Invest formula
1. Financial Freedom – Spend
Determine how much you need to spend each month to live your best life. Don’t postpone your ideal lifestyle or your bucket list until retirement. Clearly identify what you want to be, do, and have right now and calculate the associated costs.
Knowing your financial freedom number—the monthly amount required for your ideal life—gives purpose to your current earnings. If there’s a shortfall, you can take two approaches:
- Save up: Set aside funds until you can afford what you desire.
- Create wealth: Seek a pay raise, a bonus, invest in income-generating assets, or utilise your knowledge and expertise to start a business that fills the financial gap.
Remember, you are your greatest asset, and your current means should not limit your potential for abundance.
2. Financial Security - Save
To achieve financial freedom, it’s crucial to feel financially secure. Once you know your financial freedom number, the amount required to sustain your desired lifestyle, you can implement safeguards that will cover your expenses if you’re unable to work.
Over time, building an emergency fund that covers 3-6 months of your spending will provide you with readily accessible resources when needed.
If there’s something you can’t afford right now within your financial freedom goals, save up for it. You’re not saying “no”; you’re simply saying “not yet” until you’ve accumulated or saved the necessary funds.
3. Financial Independence - Invest
Fundamentally, you don’t want to be reliant on work indefinitely. Even if you love your current occupation, having the choice to work or not is true independence.
We no longer accumulate wealth solely for retirement; instead, we build wealth over time to enjoy life in the present while ensuring financial stability for the future.
Attaining financial independence means owning sufficient income-generating assets that can cover your financial freedom expenses passively, without requiring ongoing effort.
The key is to allocate whatever you can afford to tax-advantaged investment strategies like pensions or ISAs (Individual Savings Accounts) over time. This approach has a profound and compounding impact on your independence fund.
In summary, your financial plan should achieve three objectives:
- Reveal your financial freedom number, allowing you to map out your desired future.
- Give every pound you earn a purpose, enabling you to live an intentional lifestyle.
- Leverage your money, time, energy, and expertise by making your “assets” work hard for you over time.
If the idea of becoming your own financial freedom planner resonates with you, if you feel that your hard-earned money is slipping away and you’re working harder than necessary without feeling any wealthier, then reach out to Emma Wright, founder of Independent Wealth, at
hello@myindependentwealth.com
or visit www.myindependentwealth.com for more information and resources.
