7 Steps To Financial Independence (step#1)
START WITH THE END IN MIND
Stephen Covey, author of The Seven Habits of Highly Effective People, often stresses the importance of beginning any project with the end in mind.
What does this mean for you, as someone who wants to ensure a safe and secure financial future?
It means that you should start by sketching out your own definition of what your ideal future looks like.
For some people it means retiring on their 65th birthday and immediately moving to Florida. Others imagine a more active retirement, including part-time work, travel and volunteer activities. Everyone has their own picture of “success” so it is important to get this on paper as your first step.
If you are married, an important second step is to ensure that your vision of a successful retirement is in sync with your spouse’s. Beyond the obvious reasons, it is important to have your goals aligned because it will be much easier to get where you are going if you are both applying your efforts in the same direction. In particular, if you have the same goals, it will be easier to share in the necessary sacrifices along the way. For example, you may choose to forego a vacation one year in order to make a larger contribution to your 401(k). You will both be happier making this sacrifice if you share an understanding of how those added savings will help you realize your retirement vision. If, on the other hand, you don’t share that understanding, then these kinds of decisions may become more difficult, and as a result, your savings will be more haphazard.
The last step is to attach numbers to your vision. Oftentimes, in our working years, we are so busy climbing the career ladder that retirement savings becomes an afterthought. We try to save what we can, but we don’t do the math to think about how much we need to save today in order to support the lifestyle we imagine for tomorrow. Doing this math is, of course, difficult because so many things can change between today and the day you retire, including your income, the stock market and the value of your home. No one can predict all this, but you don’t have to.
The English philosopher Carveth Read once wrote that it is better to be “vaguely right than exactly wrong.” You should let this philosophy guide your own approach to planning. Just start with a plan that gets you heading in the right general direction, and recognize that it’s OK to make adjustments along the way.