Raffi PailagianMBA, BSc, DipFP
Adviser / Managing Partner
We all strive for financial independence in retirement. But what if you could achieve that independence in your 30s, or 40s or 50s? Imagine working because you want to, not because you have to.
Having the time and freedom to take a long break and travel, or commit your time to charity work, or just improve your golf game. Achieving that sort of financial independence might seem like a dream, but with a little work and planning it can be a reality.
As with all things financial, success is all in the planning. The first thing you need to know is how much money you will want as income to live on.
According to The Trinity Study[i], a 1998 study conducted by three Professors at Trinity University, you require 4% of your portfolio annually to live on. So if you want, say, $100,000 yearly income, you will need a portfolio of $2.5million. This, of course, is a very broad rule of thumb.
How much you need in actuality will depend on how long you intend to be independent, and on the conditions in the market. But this is a good figure to use as a bare minimum. So now you know how much you need. How do you go about getting it?
As the old saying goes, it won’t happen overnight, but it will happen. If you put in the hard work. Here are some tips for creating a portfolio sufficiently large to support you in the lifestyle you would like:
1 – Work out a budget and stick to it. Don’t be too brutal with yourself. Build in treats, but not too many. Be honest about the difference between what you want and what you
2 – Set financial goals. Be specific and measurable about when and how much you want to have saved or invested.
3 – Be aware of your bad habits when it comes to money – whether it’s the small things like indulging in takeaway meals a bit too often, or the larger things like forgetting to pay your utility bills in time to take advantage of the early payment discounts. Note them, then change them.
4 – Get out of debt. Interest paid on credit cards and loans is lost money that could have been invested. So if you’re brave enough cut up those cards, or at least put them in the freezer, and live within your means – or better still below them.
5 – Set up automatic savings so that the money comes out of your pay account as soon as it goes in. This will ensure you do save, rather than being tempted to put it off till next month.
6 – Educate yourself on all things financial, from the best bank accounts available to the movement of the markets. Some of our previous articles might help you get started, Asset Allocation Strategies, Active vs Passive Investing, and Retirement Income Strategies, all cover areas you will need to be aware of.
7 – Start investing now – it doesn’t matter how small. Something is better than nothing, and the sooner you start the sooner independence is yours.
8 – Remember to diversify. We have talked many times about the importance of diversification in the success of a portfolio, and this is particularly relevant if you are going to be relying on your investments for income and not just growth.
9 – Find a good financial advisor, someone you trust and then listen to them.
If being financially independent is something you would like to achieve, Manly Financial Services have the skill and expertise to help get you there. Call us on (02) 9976 3388 or click below to find out how we can help you achieve your dreams.
Head Office: Suite 105-106, Level 1, 39 East Esplanade, Manly NSW 2095
Manly Financial Services Pty Ltd is a Corporate Authorised Representative (Representative No.: 321127) ABN 38 115 806 883 of Futuro Financial Services Pty Ltd, Australian Financial Services Licensee (AFSL 238478)
This website contains general advice only. You need to consider with your financial planner (or adviser), your objectives, financial situation and your particular needs prior to making an investment decision. Futuro Financial Services Pty Ltd and its authorised representatives (or credit representatives) do not accept liability for any errors or omissions of information supplied on this website.