5 Corrosive Attacks on Your Financial Freedom (And what to do about them)

The desire for freedom is probably our biggest motivator. It manifests itself in the ability to fulfill our most basic needs, or to transform society on a global scale.

What makes the news though is when we as individuals or collectively are not able to exercise our freedom, through discrimination, economic exclusion, authoritarian rule or other attempts to constrain us.

Attacks on our freedom are largely beyond our direct control. If that’s the case then, why not control what we can control?

I’d like to highlight five major attacks on your financial freedom, not to depress you, but to emphasize that these attacks are the raw material for the antidote! Here they are:

Inflation

Inflation can be seen two ways: an increase in the price of goods and services and/or a decrease in the value of our currency. Over the past couple of decades, we were continually warning of the need to protect your lifestyle and assets from the potential ravages of inflation. Because inflation was usually at or under the 2% target, few heeded the warning. We’re paying attention now though!

Now is the time to fight inflation through a 3-prong counterattack:

1. Invest in assets that both provide a fair rate of return and increase in value. Your own business, stocks in many businesses or real estate are examples.
2. Invest in your business if you are an owner or invest in yourself in learning and capabilities that make you more valuable in the workplace.
3. Look for the best value when you pay for goods and services. There is no shame in being frugal and it is a sure way to fight “lifestyle inflation.”

Comparison Culture

Most of us will never be satisfied with our current state. We understand where we are now and a vision of where we want to be. There’s nothing wrong with that – it’s what drives innovation and keeps us moving forward, always trying to improve. Where things go offside though is when the comparison of our current and desired states is driven by someone else’s goals rather than ours.

Now is the time to focus only on goals that matter and avoid those that don’t matter.

We use a great tool called The Financial Freedom Blueprint. It involves a short conversation that helps you to identify your most meaningful goals. Once you’ve clearly identified those goals that matter, it becomes easier to steer clear of the distracting shiny objects.

Excessive Fees and Expenses

Research Firm Dalbar Inc. regularly publishes its Quantitative Analysis of Investor Behaviour Report. The current report shows that average equity fund investors underperform their relevant benchmarks by between 3% to 5%, depending on the type of investment. This is due to a long list of costs including behavioural costs, trading costs, management expense ratios, excessive portfolio turnover, index tracking error and reconstitution costs, cash drag and many, many others.

There is no easy answer to this. My opinion though is that you should only pay fees when they are reasonable, when they add value to your portfolio and when they are supported by investment principles that are evidence-based, rather than speculative.

Taxation

Whether you are filing your own tax return or paying someone to do it for you, you may be leaving thousands of dollars on the table by not incorporating your tax planning into your financial plan.

The deadly combination of taxation and inflation create a “double whammy” that can absolutely destroy your wealth over time.

There are three basic tax strategies that you could explore:

• Deduct – use all available deductions to reduce the income that is exposed to taxation.
• Defer – By compounding your growth under a tax deferral, the compound effect can be spectacular. Yes, you will eventually pay tax, but it may be at a lower rate of taxation (in retirement for instance) and the tax will be on a far larger sum than you would have grown had you paid tax every year.
• Divide – There are several ways that you can split income with your spouse or children through pension splitting, spousal loans RESPs etc.

If you’re interested in a checklist of tax credits and deductions that may be available to you, please message me or comment below and I’ll send it to you.

Financial Illiteracy

Most forms of media, especially social media, are designed to “day-trade” our attention. Because solid financial principles and strategies don’t attract clicks like sensationalized headlines do, it’s hard to find financial truth.

The very fact that you’ve read this far into this article speaks volumes about your curiosity and desire to dig deep rather than react to the abundant fluff out there means you’re on the right track.

I have no shame in offering another great resource. For more than 4 years now, we have published “WealthSmarts ” every single week every Friday. It is a one-minute read with at least one tip, strategy or resource that will help you take one step closer to financial freedom. You can subscribe through this link. You will also receive a number of toolkits that we send throughout the year.

You are hardwired to be free. Financial Freedom is your ticket to achieve the goals that matter to you.