Financial Independence Lifestyle Before Retirement

A common topic that arises as I meet with folks alongside my team of investment advisors is what it looks like to plan for a financially independent lifestyle. We discuss financial independence regularly, and it boils down to how you’d like to live once you achieve financial independence. Most folks aren't looking to amass money for the sake of having it. Money serves a valuable purpose: they want to pursue the things they love with the people they love. Today, let’s talk about maximizing your financial independence while you're still working.

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While your working years seem to be the opposite of financial independence, you don’t want to wait until you’re fully retired to dive into the realities of a financially independent lifestyle. It is a continual process. Many of you have told me you’ll likely continue working after retirement but want to be in a financial position to do so out of enjoyment, not obligation. There’s no need to set aside a job that brings you fulfillment. The goal would be to work it in as part of your overall lifestyle.

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However, what about those still working full-time, growing, and saving up their nest egg so they can step away one day? I encourage most of my clients not to do that cold turkey but rather to practice retirement while they’re still working. I see significant mistakes made in the financial and time arenas that could easily be fixed to maximize a person’s lifestyle.

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Let's start with finances. Unfortunately, many people have been taught that the best thing to do is max out their home. This seemed like sound advice decades ago because a house was considered an excellent investment. From what I've seen in my financial planning, a home is a decent investment, but it's more so a place to live. The goal is to get back the money you poured into your home (unlike renting) by selling and pocketing the equity or passing it on to a loved one. Typically, homes designed for the average American will appreciate at approximately the rate of inflation, even in nicer markets. Don’t overdo it! Get what you need and start building a plan to achieve financial independence while you're still working; harness the freedom to do what you want with those you love within the constraints of a working career.

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Your first priority should be giving. No matter where you are financially, I teach giving as a vital, essential practice. Some are hesitant if they’re still at a point in life where they’re scraping and trying to get by. However, if you don't develop an attitude of giving and generosity, it will seep in and affect your entire life. I can promise you from my own experience and observation of thousands of lives over the years that people who are givers live wonderful lives. We recommend allotting 10% to giving, reflecting the Christian tithe model many of you are familiar with.

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Your second priority should be saving. We recommend setting aside 20% of your paycheck during your working years, except for those experiencing special circumstances, like early retirement or trying to catch up financially. Ideally, you’re also receiving my favorite kind of money: employer-match-free money. If you listen to me regularly, you know my second favorite kind of money is tax-free. To take advantage of this, invest in a Roth 401(k), not a traditional one. Your employer contribution will be traditional and tax-deferred, but your 401(k) money will grow tax-free and?help reduce taxes later.

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Your third priority is spending, which accounts for 50% of your paycheck. This budget includes your necessary, non-luxury living expenses and taxes. Spending only half of each paycheck may feel restrictive, but it is necessary to enjoy financial independence now and in the future.

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Your fourth priority is offerings. This is your “above and beyond” generosity. As you are blessed, you can go above and beyond to meet the needs of others. I suggest designating 10% of your budget to offerings, bringing your total giving to 20%.

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The final 10% of your budget can go towards luxuries. This means a total of 60% is spent on your lifestyle. If you do it correctly, you have about 20% to pull between your spending and luxury categories to begin enjoying financial independence before retirement. This is available to anyone on a financial level who budgets properly. Focus on value during your working years; do things you can enjoy that are substantially discounted from regular prices. You'll be in fantastic shape if you can designate 40% of your budget towards covering your needs, 20% towards savings, and 20% towards hobbies and luxuries.

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Additionally, work smarter around your time constraints. I see this mistake often: people don’t work around holidays, yet don’t want to take advantage of time for travel. I encourage you to maximize your time and financial freedom by compounding your days off during the holiday season and weekends to travel.

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In our next segment, I look forward to discussing how to maximize your financial independence lifestyle after?retirement, where time constraints will no longer be an issue. In the meantime, my team and I would love to meet with you to discuss how you can maximize your financial independence and retirement lifestyle. We help people just like you retire worry-free and financially independent every day. It starts with a simple phone call.

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Investment Advisory Services offered through Lord and Richards Wealth Management, LLC, a Registered Investment Adviser.

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