Financial Independence, Once Defined, Needs Realistic Goals for Success by Darren L. Zagarola, CFP®, CPA, PFSAs published on Princeton Patch, July 2014Because we celebrated Independence Day earlier this month, I thought a blog on financial independence would be appropriate. As I sat on the beach over the long Independence Day holiday weekend, I offered to my 7-year-old son my perspective on the importance of Independence Day and what it meant to me. It led me to think about how my clients view their own independence – and specifically their financial independence. This is a topic we discuss early on in the financial life planning process, and one that we typically revisit annually. What I have learned over the years is that independence can be, and is, defined differently by each person. Whether they use the term or not, “financial independence” is stated as the number one goal for most people when asked about their financial plan. There’s no doubt that financial independence is a great goal; the problem is, it’s very vague. So I’ll ask readers what I ask my clients: What does financial independence mean to you? What in life would help you achieve financial independence? Most people think they need to win the lottery or have a long-lost relative leave them buckets of money for them to be financially independent. But does money make you independent? Some define financial independence as having enough money to never work again and be able to do whatever they want, no matter the cost. Again, this is a great goal, but the issue is that it’s too lofty and unrealistic. Remember, goals have to be realistic or the goal setter will feel like they’ll never succeed. Frustration then sets in, and the pie-in-the-sky goals are abandoned. One of the better definitions of financial independence that I’ve heard is the ability of the person to get out of the “rat race,” whether it be in Corporate America or on Main Street. Most folks want enough income and assets so that they wouldn’t need to work at their current job; all but a few are only working because they need the money. Many are not doing what they love and are making decisions based on financial reasons rather than personal ones. If they had the ability financially, they would do something different. We all want control over our lives. This is what independence was to us as teenagersso it’s just logical that it would be similar later in life. People want the freedom to make decisions to better their lives without having to concentrate on the financial constraints. So how can financial independence be achieved? It starts with a plan. It would be foolhardy to set out on a journey without a map indicating what potential obstacles might be in the way down the road. Sure, the map may need to be updated periodically, but at least a plan is in place. The idiom “you can’t get there from here” defines the beginning of the life planning process. There must be a starting point, followed by goals, to get to the ending point. The plan starts with knowing where you are now - the starting point. Financially, one needs to know his or her cash outflow, and the current and anticipated living expenses. Next, goals must be considered. What do you want from life? Is it to have your own business, to decrease your hours to part-time, or to fully retire? Once the starting and ending points have been established, a plan can be made to get from point A to point B. This might include working longer, changing jobs, and/or decreasing expenses so savings can be increased. Pension or social security collection options would be considered. Your investment portfolio is one of the vehicles to get you there. Everyone with a portfolio needs to consider whether they should be more aggressive or more conservative. It is also important to protect yourself from unseen issues that would impact your independence, such as sickness, disability, incapacity or death. This is done through insurance and estate planning. Insurance planning includes life insurance, long-term care and disability insurance. Estate planning includes your wills, powers of attorney and living wills. Our founding fathers had a plan to achieve our country’s independence that began with understanding the current situation and ended with knowing what they wanted the future to look like. Planning one’s financial future is no different. Know where you stand today, consider your future, and take steps to achieve your own financial independence.