The term financial literacy is not new, but it’s being discussed more and more frequently these days, especially since the worldwide financial crisis of 2008, which continues to this day.
Today’s unsettled economy has been described by the Wall Street Journal and other sources as “the New Norm.” Experts believe that the recent recession ushered in a “new norm” (or “new normal”), where the spendthrift ways indulged in by many before the 2008 crisis have been replaced with an increasing interest in saving, general frugality, and need to develop a stronger sense of financial literacy.
Basically, financial literacy means having a firm understanding of fundamental financial concepts and strategies, and the ability to manage money responsibly in order to ensure financial security. Financial literacy is essential to ensure the financial stability of individuals and families as well as the overall economic health of society as a whole.
As a result of the 2008 economic meltdown, it became stunningly obvious that many people have not managed their finances in such a way as to provide financial freedom for themselves and their families at any stage of their lives – much less after they retire.
In fact, many financial organizations report that most Americans currently reaching retirement age – the infamous Baby Boomers – have not planned or saved adequately for retirement.
So now we all must relearn some essential financial truths, become financially responsible, and prepare for the financial realities of life. In other words, we must become financially literate. We must learn all we can about our money so that we can make the most informed financial decisions in all facets of our lives.
Financial Independence is the point at which we can stop working for our money and our money starts working for us. It is the point at which our savings and investments generate enough income to support our chosen lifestyle, and allow us to continue to live that lifestyle without having to work for a paycheck.
For most of us, achieving financial independence is our most fundamental financial goal. It is the position we hope to achieve so that we can retire and live life on our terms.
What that number may be in terms of dollars is different for each of us. Some people can manage rich full lives on a modest income, and seem to be able to reach financial independence with ease and clarity.
Others have multimillion-dollar annual incomes, yet still find themselves living way beyond their means and view financial independence as an impossible journey.
How you determine what that looks like to you depends on several factors, including:
- Understanding your current standard of living.
- Projecting how you want to live after you retire.
- Figuring out how many years of saving it will take for you to reach financial independence.
- Figuring out how many years of financial independence you hope to enjoy once you get there.
NINE KEY ISSUES TO COMPREHENSIVE WEALTH MANAGEMENT
No matter how you define financial independence, whether it is an annual income of $25,000 or an estate of $25 million, you need to understand and manage the following fundamental wealth management issues.
- Committing to living within your means and conscientiously saving for the future.
- Understanding taxes and how to effectively minimize your tax obligation.
- Realistically defining your standard of living, including your net worth and your current cash flow.
- Managing debt.
- Insuring yourself and your family in case of extreme illness or death.
- Protecting your property.
- Investing intelligently and productively.
- Planning for retirement.
- Preserving your estate.
Throughout our lives, we are in a perpetual state of change, financially and otherwise. Our needs and wants are constantly changing, along with our income and our standard of living.
What may seem like a financial priority at the age of 18 (buying a car; paying for college or graduate school) is probably quite different by the age of 30 (purchasing a first home or planning for the birth of a child).
At 60, we may be considering retirement while simultaneously paying for a child’s college education or an elderly parent’s care – or all of the above.
Throughout our lives, we will encounter many questions and problems relating to money, but every one of them will fall, in some way, under one or more of these 9 key wealth management issues. It is important that you understand them and work within them productively – that you become financially literate.
Depending on how you prepare and handle each of these wealth management issues will determine how successful you will be on your path to financial independence.
You must understand that these issues are interrelated, and how you deal with one very often will have an effect on how you treat the others.
For example, if you fail to manage debt properly, you will find it difficult to save for a home of your own, your child’s education, or your retirement. Or, if you neglect to properly insure yourself against sickness or premature death, your spouse and family could be wiped out.
Becoming financially independent is not something that happens by chance; it requires focus, discipline, determination, sacrifice, and a lot of hard work.
If you are serious about achieving financial independence you must be willing to make the commitment to do what it takes to learn the necessary tools to pursue your financial goals.
Please take the time to evaluate your current financial situation by downloading and completing the Comprehensive Wealth Management Questionnaire. This questionnaire will help you start thinking about the financial issues you have under control and others that may need attention.
