Posted on Friday June 01, 2018

Retirement? How about financial independence instead?

Ah, retirement. We all dream of the day when we can wave bye-bye to stress, schedules and accountability and say hello to a comfortable new life. A major life stage that's worth saving for - and right now, many of us are busy doing just that.

Still, saving requires rigour and discipline, especially given that labour market entry is later, making retirement at 65 a near-impossibility for Gens X and Y. But what about if you set your financial independence goalpost a little closer?

Just what is "financial independence"?

Financial independence means not having to go to work every day to cover your expenses. Enter the dream! The dream of being able to choose. Choosing to work at will. Choosing not to have to report to a boss. Choosing to work out of interest instead of obligation. But - assuming you aren't a wealthy heiress, a hockey player or the next Mark Zuckerberg - is any of this really possible?

An attainable goal?

The answer is, yes! And the big advantage to financial independence is that, with a little planning, you can achieve it before you turn 65. Being financially independent isn't about becoming idly rich, either. Really, it's about enjoying more freedom - like working part-time, setting your own schedule, starting your own business or reviving an old dream like going around the world or writing a book.

The question is, how?

Here's the secret: be determined; set an objective that's clear, precise and has a time limit; and then stick to it. Oh! and of course, start as soon as possible.

In real terms, the first step definitely consists of drawing up a tight, well-planned budget and then refusing to be lured off-track. Doing so is a great way to identify your earnings and expenses and then building on them. Because, let's be honest, there's no magic bullet. Generating a surplus calls for smart financial management so that you can raise your income and/or reduce unnecessary spending where possible. Basically, you need to live within your means by not spending more than you earn. What's key to all of this is never losing sight of your goal. Keeping the big picture firmly in mind will make it easier to swallow having to alter your spending habits. At the end of the day, it's about making sacrifices now so that you can reap the benefits further down the road.

The surpluses generated from getting your personal finances into shape can initially go toward clearing your debts. Once you're debt-free, your extra cash can be invested at a risk level that aligns with your tolerance, or be used to buy real estate (like an income property).

At the same time, you needn't overlook possible revenue. For example, putting cash into a TFSA or an RRSP will result in tax savings that can then go back into your investments.

Of course, good financial planning is essential to growing your assets and building a legacy. According to the Investment Funds Institute of Canada (IFIC), households that make use of a financial advisor build assets more quickly. So don't delay: talk to an advisor at the UNI business location closest to you. And before you know it, you'll be able to say, Hello, freedom!