Taking three steps to financial freedom
What does financial freedom actually mean and how will we get there?
To put it in simpler terms, what would you like your accumulated savings to give you the freedom to do?
Would you follow your national football team around the world? Study something you’re passionate about? Work as an unpaid volunteer for a cause important to you? Write a book? Look after your grandchildren? Buy a canal barge and live on it for six months a year, or retire to a rice farm in the Philippines? The list is endless.
Acting on these three steps will help to shape our futures:
Step 1 – Reframe
Let’s challenge our understanding of financial freedom and what it means to us and then reframe a definition that is unique to us.
It’s not about having as much money as the richest person you know. Nor is it about having “more than I need”, because when is enough “enough”?
So, is it less about what we have in monetary terms and more about setting our expectations and lived experiences?
True wealth is the abundance of what we truly value; it’s feeling socially connected. It can come from having a purpose. It’s feeling healthy so our health span is not shorter than our life span – all the money in the world cannot fix chronic health problems.
We need to widen our scope and have two parts to every financial freedom plan:
1. How would I like to spend my time? Start investigating and mulling over options you like. For example, how much is a canal barge or buy a map of canals and study some routes or trial it for a holiday or how much does a rice farm cost?
2. What will my investment portfolio and savings plan need to look like to achieve it? Ask your investment adviser for guidance to get more familiar with the numbers and the investment direction to take.
Taking the time to review and reframe both parts of your plan means you can be both time and money confident, to live the best life with the money you have.
Step 2 – Refrain
Just like your weight is a lagging measure of your eating habits, James Clear (author of Atomic Habits) tells us: “Your net worth is a lagging measure of your financial habits.” So, what can we stop spending on so that we can gather assets like a magnet gathers metal?
There’s a graphic online currently that shows a good perspective: Suppose, for the past 20 years you spent $4 a day buying Starbucks stock instead of buying their coffee – you would have made $161,396 plus dividends versus losing $19,200 purchasing the product.
It highlights we have choices.
Shops are constantly flooded with new colours, new styles, better cars and smarter phones, so how do we resist the monster that is the marketing machine making us want this stuff?
Here are some tips to make the ‘stuff’ less appealing:
1. Think before you buy – give yourself a day or two delay to see if the “high” of the idea wears off. It usually does.
2. Make temptation invisible – stop the online shop scrolling, unsubscribe from sale e-mails, unfollow influencers who trigger envy and jealousy.
3. Recognise the importance of opportunity cost – in other words it is not only the cost of a product you’re losing money on but the return from its investment potential.
4. Imagine everything you buy in your lifetime ending up at the dump? It’s where it all ends eventually. Better still, imagine that dump was on your land. Now picture the same for every neighbour and their land. Do we really need it?
Decide you want financial freedom with small daily wins. Resist spending, keep to a budget, and keep your finances in order.
Your wealth can then be measured, the same way my Dad taught me, which is, “in proportion to the things you can do without”. Or, in the words of John Lennon, “Imagine no possessions…”
Step 3 – Reclaim the life you want
If you decide you want financial freedom, just like the nursery rhyme from the 1800s “One foot up the other foot down, that’s the way to London town,” the next step is all there ever is towards your future. Search for tiny margins of improvement in everything you do.
Remember, it’s easy to talk to an investment adviser to help you on your investing journey. And now is a perfect time to ask about the great returns from very conservative money market funds – they haven’t been this good for years.
I’ve never heard someone say, “I met with my investment adviser the other day…” without a pride that they had taken a robust self-directed action for their own future financial freedom.
The actress Jennifer Garner once observed: “Nothing looks better in your fifties than sunscreen in your twenties." The same applies to your investments; it’s only when looking back over time that the value of good saving and investing habits becomes strikingly apparent. Time magnifies our habits so it is important we take care of our future self, today.
By reframing your view of financial freedom, refraining from spending, and, reclaiming the life you want one step at a time with a cycle of continuous refinement, improvement and investment, you’ll be heading in the right direction.
• Sue Couper is the general manager at LOM Asset Management Ltd. Please contact LOM at +1 292 5000 or visit www.lom.com for further information. This communication is for information purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service. Readers should consult with their brokers if such information and or opinions would be in their best interest when making investment decisions. LOM is licensed to conduct investment business by the Bermuda Monetary Authority
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