So what is “financial independence”? Everyone bandies the term about, everyone says they want it, and yet most people can’t define it. (In fact, it’s often lumped in with those aerie-faerie terms like financial freedom, abundance, and prosperity.)
The most common definition of financial independence is “an economic state of equilibrium where your income from passive sources meets or exceeds your expenses.” In other words, you can wake up in the morning, not do any income-generating work, and know that your money is making enough money to cover your expenses.
Now that’s freedom.
Yet it’s totally arbitrary in terms of what it looks like for you. Because you define your lifestyle and related expenses … unless you’re still letting the Joneses do that for you.
What does it take to reach your targeted definition of financial independence? There are three general rules that should get you there:
- Bring in more money than you spend, and invest the difference wisely.
- Keep a tight rein on expenditures and reduce them where you can.
- Keep at it; as they say, “Wash. Rinse. And repeat.”
After my financial tsunami at age 53, I looked at money with a new set of eyes. Among other things, I decided I had to get familiar (even comfortable) with the idea that some day I would no longer be able to work. It wasn’t a depressed time. After all, I was actively picking up the pieces and had great faith in my ability to get back on my feet and thrive. But I also had a new twinge of realism.
So I developed three scenarios for the future: my ideal lifestyle, an average lifestyle, and a bare-bones lifestyle. And I built detailed budgets for each.
The ideal lifestyle was actually the hardest to develop, because it was now so far from how I was living. But after some fantasizing, I defined what really mattered to me, what part of that I would take into an ideal situation, and how much that would cost.
The average lifestyle was pretty easy because it was straightforward: it reflected what so many people were living.
And the easiest of all was the bare-bones scenario, because that’s what I was living after having lost everything. I had scaled back to a very Spartan lifestyle. And, surprisingly, I found it enlightening. Cleansing. And absolutely exhilarating when I realized that I would almost be able to live on Social Security if I retired at 65, and definitely could if I held out until I was 70!
Oh, the weight that came off my shoulders, knowing I’d never be a Bag Lady! Knowing that I’d always be okay … The feeling of peace of mind that comes with that knowledge is so amazingly liberating that I have difficulty describing it. But it is precisely what fuels my desire to work with women: to get them making healthy money choices and on the path to long-term financial soundness.
I’ve since been chastised for “promoting” a reduced lifestyle … as if it were in some way unpatriotic. (And as if I had some obligation to tell people to spend beyond their means, accumulate things they don’t need, and fuel the nation’s economic recovery.)
But that’s not my purpose or my message.
By identifying those three budgets, I now have viable targets for the future. Most reassuring is that I know I already have one of them under control: the bare-bones one.
I know by stretching, earning more, saving more, being a little more creative, I can afford to give myself a long-term future that looks like the average lifestyle.
And by pulling out all stops, knocking it out of the park, and following my dreams, I know what it will take to give myself the best of everything.
But that’s “the best of everything” as defined by me. It’s what reflects my values, my standards of integrity … all the things that float my boat. Not someone else’s.
For those of us over 55, whose Social Security we’re told will not be touched, it means we know how much we have to be generating each month in passive income above our projected Social Security payment. And that’s not a complicated calculation.
Granted, it may be an unsophisticated (even primitive) way of doing long-term financial planning, but it’s something anyone can do. With just paper and pencil … with basic arithmetic.
And it’s the cheapest peace of mind you could buy yourself.
xxxxxxx
Sharon O’Day lost everything at age 53: her home, her business, everything. But how could that be? She’s an expert in global finance and marketing with an MBA from the Wharton School. She has worked with governments, corporations, and individuals … yes, she was the secret ‘weapon,’ if you will, behind many individuals in high places. But still, she did! Since then, Sharon has interviewed countless women and done extensive research to understand how that could have happened, especially with her strong knowledge of numbers and finance.
The surprising answers will be shared in her upcoming book “Money After Menopause.” Today her mission is to show as many women as possible how to reach financial security for the long term. She has developed a step-by-step plan to get past all the obstacles that keep women broke and scared … and from reaching the financial peace of mind they so deserve.