Werner C. Duever

Financial Security Advisor
Investment Representative
Freedom 55 Financial

10 steps to achieve financial independence

Remember what it was like to be a child in London, Ontario when you could dream of being anything you wanted? You didn't set limits on your dreams. You believed anything was possible. Then you got in the rat race and lived for weekends and perhaps two weeks of holidays a year. Do you love the work you do or would you rather do something else? There is a better way. You could achieve financial independence and do the work you always dreamed about.

It takes hard work and great determination to be financially independent, and it is possible. Below are the steps you can take to help achieve your freedom from the rat race.

  • Establish your values system. What are your dreams and aspirations? Everyone has values but many don’t live by them. Some might prefer free time where others desire a strong work regime. Others might like to travel on foreign missions while some people like to serve their community at home. A lot of people go through life without really understanding their value system and their real purpose in life. Isn't it time to understand your values and start living the life you were really meant to live? When you discover your values, life has more meaning and you will start to make financial decisions based upon what you value instead of what your friends and family think you should be doing.
  • Take stock of where you are financially. You should always know your financial net worth. Your net worth is the difference between your assets [real estate value, Non-registered investments, tax-free savings accounts (TFSAs), registered retirement savings plans (RRSPs), etc., and your liabilities (what you owe). Your ability to take care of your self is tied directly to your financial net worth. The higher your net worth the more financially independent you will be. I track my net worth every month using an excel spreadsheet taken from the Robert Kiyosaki game 'Cashflow 101'. It quickly tells me my present net worth and my assets and liabilities.
  • Reality check on your ability to earn an income. Your ability to earn an income, unless you are already being taken care of by family or the government, is the most important attribute you have to take care of yourself and your family. If you lose this ability due to a job loss or illness you quickly realize how important and vital it is to your well-being. To help protect your income make sure you have the proper disability insurance in place. If you have disability insurance coverage through your group benefits at work, check to see if it will cover you completely if you have a disability lasting longer than two years. Often, it will only cover your income for two years and then if you are able to do any other job other than your occupation your group disability plan will not provide an income. If your employer is paying for your coverage you will be taxed on the income you receive from your group plan.
  • Start a budget and use cash where you can. Save before you buy. Some financial help books don't believe in having a budget, but I do. You should always know what money you have coming in and how much you are spending. Otherwise you run the danger of spending more than you make regularly and going into debt. I recommend using 50 to 70 per cent of your earnings on daily expenses. Save 10 per cent, invest 20 per cent, and if you are charitable give 20 per cent to causes you believe in. I think this spending and savings strategy will make most people cringe and rightly so since our North American lifestyle has preached live today and don't worry about tomorrow. Even if you manage to save 10 per cent you will still be ahead of most people. The average savings rate for North Americans has dropped considerably from 20 years ago.
  • Create an emergency fund. Unlike many people who rely on credit cards in an emergency, I recommend saving at least three to six months of your living expenses in a TFSA. My wife and I have created our own emergency fund and have discovered that we have very few emergencies. We rarely have to use our emergency fund since emergencies seem to magically disappear. We like to keep the interest on the growth in our emergency fund instead of giving money to the credit card companies in the form of credit card interest. Money in our pocket instead of theirs!
  • Save before you buy. My wife and I save before we take trips or buy things we like. Once we have the money saved for a vacation we enjoy it more knowing that after we return home from our trip we can pay off our credit cards. One small downside is that we have to watch our spending while on holidays and have to pick and choose what activities we do. For our next trip we have decided to up the level of activities and keep the cost of travel low so we can do more and at a higher level of luxury. Sometimes you have to sacrifice a little splurging today to achieve the financial independence you seek for tomorrow.
  • Make sure you have the proper insurance protection in place for yourself and your family. Our Canadian government only expects us to hold certain types of insurance like auto insurance. They don't expect us to have our own life, disability, critical illness or health insurance. In my opinion it is best to have your own insurance in place if you are to have true financial independence. If you lose your job you know that you are still covered because your own insurance coverage is not tied to your employer. You can't anticipate every trouble that comes your way but having a good level of insurance coverage in place will increase your odds of maintaining financial independence.
  • Seek a qualified financial security advisor. For car repairs, you go to a licensed mechanic and to have open heart surgery you go to a qualified heart surgeon. Likewise, put your finances in the care of a qualified financial security advisor whom you know you can trust to give you the proper advice. Check his/her track record and testimonials. Having a good financial security advisor on your team along with a good accountant and (when necessary) a lawyer will give you a better chance of reaching financial independence. Make sure your accountant and lawyer understand the benefits of having insurance in your financial security plan.
  • Stay healthy. This 70-year-old gentleman promotes an active lifestyle especially for older people. In his video he says– more than 80 per cent of people over the age of 65 will not recover from a fall. I think even young people could apply his techniques. He advocates simple activities to keep limber and in good balance. He is a real inspiration to many and I think he could help a lot of elderly stay fit and active. I try to stay active with martial arts and dancing. Recently I joined a Huff 'n Puff league along with my 78-year-old father who is an inspiration to me. He is a very youthful 78-year-old who still sails with his own boat. As well, my mother and father often join my wife and me for a night of ballroom and Latin dancing.
  • Think income stream! In the game Cashflow 101, the object is to get out of the rat race. Once you build up your passive income stream to the point it equals or exceeds your living expenses you are out of the rat race and get to travel on the fast track to greater wealth.

So to achieve financial independence you must focus your mind on building your income stream so you too can get out of the rat race. Passive income streams can come from real estate, dividends, royalties from book sales or recordings, investment accounts that generate income, annuities, etc. I recently created my own lifelong income stream by opening a registered retirement savings plan within a London Life segregated fund policy that includes the lifetime income benefit option.

Now's the time to start taking the steps towards your financial independence. First establish your value system. Next build your security basket of putting insurance (including proper disability and critical illness to protect your earning power) in place and establish a good emergency fund. Then start accumulating various sources of income - real estate, investments, etc. Keep track of your net worth and determine how much income you would need to get out of the rat race.

If you have achieved financial independence I would like to hear about it. Please send me your personal stories to werner.duever@f55f.com. Tell me how you achieved your independence and what you are doing today.

If you are looking for help with your financial security plan, I would be happy to assist you.