Achieving Financial Independence

As the country prepares to commemorate emancipation from slavery and political independence from British rule, now might be a good time to contemplate your path to personal financial independence and how far along on the journey you are. If you ask different people what financial independence means to them, answers will vary. Not unlike political independence — which means that the country is able to self-govern and take care of its affairs without interference from Britain — some people think financial independence is having enough financial resources to cover your living expenses and support your desired lifestyle without having to rely on a traditional job or pay check or having to accept handouts from their parents or loved ones.

What is financial independence, really?

At its core, financial independence is much more than having a substantial income to support your lifestyle. It means having enough wealth to be able to live well enough without needing to work, if you do not want to. However, being financially independent does not necessarily mean you stop working altogether. Many financially independent individuals continue to work or pursue their passions because they enjoy it, not out of necessity. The key distinction is having the choice to work on your own terms, without depending on a job for income. That is, you possess enough assets, investments, and savings to generate an income equal to or exceeding your expenses, enough to see you living comfortably. It, therefore, means that if you were to lose or quit your job now, you could afford to support yourself and your family, maintaining your current lifestyle, including all the little extras you are accustomed to, without burying yourself in debt. Can you relate to this? If you cannot, then you may not be as far along on your journey to financial freedom as you desire.

Customise a strategic plan for financial independence

Some people may say that financial independence is unachievable before retirement. To be sure, it is a process. After all, the road from the abolition of slavery in 1807 to Emancipation in 1838 to Independence in 1962 was a long and arduous one.

Ultimately, financial independence requires a commitment to budgeting, saving, investing and building wealth. The saying, "If you fail to plan, plan to fail," is a cliché only because it is true. You need to design a strategic plan for how you will build your way to your definition of financial independence. There are no shortcuts, and you cannot simply live from day to day and hope for the best. Here are a few steps to follow as you work to secure your financial independence:

Step 1: Decide what your financial objectives are. These are unique to you; you cannot copy someone else's. What are your long-term goals? Your definition of financial independence may vary from the next person's depending on the stage you are at on the financial independence spectrum and the lifestyle you want or are living. Therefore, your objectives may be more modest or more extravagant than theirs. Whatever your objectives are, write them down and keep them as constant reminders of what you want to achieve and by what timeline. They will also let you know the level of income you need to be generating from your investments or business ventures to be truly financially independent.

Step 2: Choosing your career path is essential for financial freedom. The truth is that most people, if not all, dream about achieving financial freedom, and one of the best wealth-creating tools is earning an income. However, finding a job you enjoy that supports your financial security goals might be challenging. Consequently, knowing where you want to be in the next 10 to 15 years is important. With this in mind, you can decide early on if a particular job makes sense or aligns with your overall goals. Even if you are not making your dream salary from the start, once the job offers the opportunity for professional and personal growth and there are opportunities for your income to be increased as your value increases, you stand to gain. Your career choice can significantly impact your long-term financial plan, so be decisive, strategise, and consider what careers suit your passions, skills, talents, lifestyle, and long-term security.

Step 3: Decide what tools you will need to achieve your financial independence objectives. This is the point at which you are not just saving to live day to day. Now you are actively building wealth by investing for the future. In other words, what income-producing assets, do you need to achieve this independence? There are many kinds of assets or resources that have an economic value attached to them that can provide current and future benefits through income and capital appreciation. These range from high-yielding certificates of deposit (CDs) to dividend-paying stocks and bonds, and, importantly, real estate, which can generate significant cash flow, and some can hedge against inflation.

Jamaicans love the idea of home ownership often because it signifies that a person is "making something of themselves". However, a home is so much more. It can be your biggest asset, becoming a source of equity and generational wealth. A house can also help fund retirement when used for a reverse mortgage. It can also be used to generate rental income if you create an adjacent rental property or use it solely for rental income. Let us say you have a rental property bringing you considerable monthly cash. Imagine the possibilities this could foster for your early retirement plans! Even if you do not have the entire amount of funds to purchase property, today's real estate investment funds (REITs) are another way to go on your path to true financial freedom, because a REIT gives you exposure to real estate and all its capital gains and cash flow at a lower price point.

Remember that achieving financial independence is a journey that requires discipline, patience, and consistency. It may take time, but with the right mindset and a well-defined plan, you can work toward financial independence and enjoy greater financial freedom.

Nadine Thomas, assistant vice-president – Private Wealth, NCB Capital Markets Limited (Photo: Paul Mullings)

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