5 Simple Strategies for Financial Independence

For most international professionals there is absolutely no reason not to achieve financial independence significantly before a desired retirement date.

The principle reason for any shortfalls in this achievement is because the 5 golden rules of financial independence are not followed, not known, or a combination of the two.

Golden rule number 1.    –     Understand the objective.

What is your number?  What is the value of assets you need to accumulate to have your desired standard of living for the rest of your life?

If you don’t know, you are flying blind.  Sit with an advisor and ask them to show you these calculations.  Redo these calculations on at least an annual basis, track your progress and make sure you and your partner discuss this and are both bought into the same objective.

Golden Rule Number 2.    –   Appreciate the time factor. 

Most people dramatically overestimate what can be achieved in a year and DRAMTICALLY underestimate what can be achieved over one or two decades.

You only require 7.2% growth to double your money every 10 years.  It takes time to build a robust portfolio of assets that will provide for you and your family in all circumstances.  Building this asset base is a lifetime journey and therefore patience and discipline are key.

Golden Rule Number 3.  –  Buy assets monthly. 

You’ve got your target.  You know how much you need to save per month.   Set your monthly savings or investment target and as soon as your salary arrives, buy the future!   Saving money at the end of the month will simply not work for most people.

Set quarterly, bi annual, and annual savings target and have small treats and celebrations when they are achieved.  You must take pleasure on watching your asset base grow!

Golden Rule 4   –   Diversify. 

Putting all your eggs in one basket is a rule that most know and most ignore.   An overexposure to any asset class, however safe it is perceived to be, is a high risk strategy.

Imagine you have a single dice.  When you role it could be a 6 and it could be a 1.  6 is incredible growth, 1 is total disaster.  Most financial objectives are easily achieved with an equivalent return of a 3.   Therefore roll as many dice as possible to reduce your risk.

Note:  Good investment management typically uses this technique using market intelligence, historical data and tactical overlay to push your average of 3 towards 4, 5 and 6.

Golden Rule 5   –   Protect your downside.  

This rule applies to almost every part of your financial life.

Protect the downside of your investment portfolios by diversifying and rebalancing on a regular basis.  Having multiple future income streams is the ideal.

Hold enough cash to see you through the next 3-6 months.

Insure your health.  Make certain that if you have a long and sustained critical illness your financial objectives will not be effected.  Buy a small insurance policy.