The Simple Truths About Financial Independence

The Simple Truths About Financial Independence

Although most of us dream of being financially independent, the goal frequently remains elusive. The difficulty often lies in knowing what we will need or want in the future, and uncertainty around return forecasts only adds to the ambiguity.

Good planning and investment management can help deal with challenges, but it’s not enough.  The key is developing a mindset that keeps you on track regardless of changing circumstances, market volatility, or personal changes.

I’ve had the benefit of learning from clients that have achieved financial independence as well as from those that struggle despite significant resources.  The people I know who succeed have their financial decisions outlined by the following:

  1. Live within their means and embrace saving as a way of life.  They spend their money wisely based on their real interests and don’t try to keep up with the Joneses.  They are motivated to save as they find joy in moving toward their goals.
  2. Stay focused on their craft which is typically the source of their wealth.  They delegate effectively, choosing instead to concentrate on their “highest and best use.”
  3. Embrace uncertainty and readily adapt as conditions change.
  4. Confront problems and deal with them rather than hoping they will eventually go away. They know life can be difficult and are resilient when faced with setbacks.
  5. Stay the course with investment strategy in good times and bad, making adjustments based on facts rather than emotions.  They don’t overreact to headlines or chase performance.
  6. Manage risks.  They have awareness of risks and consciously choose what to accept vs. avoid.

These are all easier said than done, because……

In order to live within your means, you need to know what your means are, have a handle on your spending, and recognize the implications today’s spending will have on future goals.

Staying focused requires discipline and trusting others.

Uncertainty causes fear and can be paralyzing.

Problems have a way of snowballing and getting out of control if left unchecked, but most of us avoid them until we are forced to deal with them.  Staying the course sounds wise until you’re in the middle of the Great Recession, when it takes all of your intestinal fortitude to avoid selling at the worst possible time.

Risks such as liability, concentrated stock positions, illiquidity, disability, premature death, and long term care can quickly sabotage the best financial plans if not thoughtfully managed.

People who have achieved or are on the path to financial independence tend to manage all these concepts well.  Sure, they stumble along the way, but they are well grounded on what matters most.  They are good at balancing all of life’s responsibilities and are courageous when faced with challenges.  Not surprisingly, they are typically leaders in their businesses, in their families, and in their communities.

Even for those with deep pockets, it is common to not feel financially independent.  For some, it is due to needing a level of “certainty” that will never come. For others, it may originate from a mindset that is counterproductive, in that they do the opposite of what I listed above.  Conversely, those with limited financial resources may feel very secure if they are doing things that move them towards their goals.

Financial independence is mostly about managing your human and financial capital in a way that allows you to live the life you want with confidence.  By adjusting your mindset, you might even realize you’re already financially independent!

Do you need more planning or instead a new mindset?


Ben Johnson
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