Happy Financial Independence Day

As originally appeared in The Jerusalem Post on April 8, 2021.

There is no dignity quite so impressive, and no one independence quite so important, as living within your means. – Calvin Coolidge

This week is Independence Day – which also marks the beginning of barbecue season. Coming on the heels of last year’s coronavirus-restricted celebrations, I expect this year will go above and beyond previous celebrations, which means there will be a cloud of smoke hovering over the country! After still not regaining my sense of smell due to my bout with COVID, I will enjoy walking outside and taking it all in, all while not having to smell any smoke! As the nation gears up for Independence Day it’s a great time to make sure you are on the road to financial independence as well.

What is financial independence? If you Google the term, you are going to find lots on early retirement and imagining a life with no alarm clock and no work obligations. Others might think it’s jet-setting around the world. I am going to stick to the Wikipedia definition: “having sufficient personal wealth to live indefinitely without having to work actively for basic necessities. In the case of many individuals whose financial circumstances fit this description, their assets generate income that is greater than their expenses. Under such circumstances, a person is financially independent.”

While many believe you need to be rich to be financially independent – meaning a $250,000 salary and savings of millions – in reality, you just need to be able to cover your expenses with passive income to fit the definition. It’s not all about your assets; your expenses play a huge part as well. If you scale down your lifestyle, you can achieve independence on much more modest sums than you ever dreamed was possible. This week, I heard a guest on the Dave Ramsey show say, “Say no today so you can say yes forever!” I love that quote. Because if you have some self-discipline now and think about the future, you can have a secure financial future. It really is doable.

It’s the exact opposite approach the government takes to celebrate independence. Here we have a country that keeps on piling up the debt, but has no issues spending millions on fireworks shows, famous singers performing for municipalities and all the other trappings. Sort of like “saying yes today and not even relating to the future.”
There are many tips that can help one get on the correct money path. I’d like to share three with you.

What’s your goal?

People need to set goals to achieve sought-after milestones. If you can’t answer “why am I doing this?” you will set yourself up for failure. It’s important to set a realistic date for when you’d like to be financially independent. It’s just as important to know why you want to be financially independent. As a guide for how much money you will need in the future, I like to tell clients they need about 20 years worth of this year’s expense to make it.

Money doesn’t grow on trees

Sitting around and dreaming won’t make it happen. You need to invest. Make saving and investing a priority. By saving and investing now, you allow your money to make more money. Start “paying yourself first” every month. Whether you invest in real estate (where you get a monthly rent check) or you invest in dividend-paying stocks, focus on a slow and steady approach to building wealth. While it may not fit with today’s smartphone swipe generation, where if you don’t like something you just swipe it away, when it comes to building assets, slow and steady rules.

Don’t wait

Just start. It doesn’t matter how much money you have. Waiting around until you manage to save a large amount and then start to invest will really negatively impact you in the future. Oh, and it probably will mean you will never start to invest as you will never have “enough” that you will be comfortable to start with. By delaying investing you are doing yourself a big disservice.

With some discipline on the spending side and a strategy and measured investing approach, you can be on your way to financial independence.

Happy birthday Israel!

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.

Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, SIFMA, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.