While financial success may mean different things to different people, financial independence speaks to a universal language.
Financial independence allows a person control over one of our greatest gifts here on earth: time.
Regardless of the monetary value of success, the emotional value in being truly financially independent is earned through these time-tested habits:
1. Don’t procrastinate
The power of compound interest is matched only by its antithetical ability to erode your wealth when working against you. The earlier one starts saving, the longer compound interest has to perform its magic. Don’t delay.
2. Educate yourself
A common trait of the financially independent few is the emphasis they place on reading and life-long education. Educating oneself on personal financial planning is critical to understanding the framework in which you, as an investor, can operate.
3. Consult the experts
Combining one’s own education with the expertise of professional advisors is the most prudent next step in fortifying one’s financial future.
4. Develop a plan
Once appropriately mandated, your team of experts should be well-equipped to develop an easy-to-understand, workable and adaptable financial plan that maps a clear path to financial independence.
5. Protect against risk
The ability to generate an income during one’s pre-retirement years is the platform upon which one’s entire retirement plan is constructed and should be protected at all costs. Any money spent on a comprehensive income protection benefit is money well spent.
6. Control personal debt
Frugality and a willingness to live within one’s means are common habits of the financially sound. Controlling personal debt involves living now like others won’t so you can live later like others can’t. Those who are financially independent are adept at aligning their spending with their future goals. If the value of every potential purchase is measured against the value you’ve attached to your goals, the result would be more cautious spending.
7. Maximise tax efficiency
Retirement annuities offer investors an opportunity to invest in flexible, unit trusts on a tax-free basis. In addition to premiums being tax-deductible, no income tax or CGT is charged on the investment returns earned in a retirement annuity. It makes absolute sense to maximise tax efficiency.
8. Don’t act impulsively
Fear and greed are the greatest drivers of impulsive financial decisions, and it is during volatile times that the financial adviser has an important role to play as a financial touchstone.
The personal satisfaction gained from giving to others far outweighs any fleeting delight one might experience from making material purchases.
Craig Torr is a founding director of Crue Invest
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