DISCOVER HOW YOU CAN UNLOCK FINANCIAL CONFIDENCE
The Financial Freedom Pyramid
Discover the 3 Pillars of the Financial Freedom Pramid
Wealth Building can be Unlocked in 3 Steps
Our process to unlock financial freedom can be found in 3 simple steps. Protection, Accumulation, and Distribution.
Whether your goal is to be able to:
The Financial Freedom Pyramid creates a systematic approach to achieving your goals.
AND, it’ll help you do it faster than you may have ever even thought was possible.
"If you are failing to plan, you are planning to fail"
One common misconception in financial planning is, “I don’t have enough money to need a financial strategy.” This statement couldn’t be further from the truth. I would argue that it is essential to ensure you take steps to protect future assets and family before accumulating wealth. The earlier you start, the more time you give yourself and your plan time to develop and thrive. If you are beginning this step in your 20’s or early 30’s, you are giving yourself ample time to reach your goals using the FI/RE (Financial Independence Retire Early) model. Focus on these four areas:
1. Establish an emergency fund of cash savings of 6-9 months of living expenses. Life can be unpredictable; a savings nest of 6-9 months will enable you to weather most storms and insulate you from financial stress during a job loss, layoff, or unexpected illness.
2. Review and implement insurance coverages with a licensed professional. You can achieve this by purchasing insurance such as term life, disability, home, and auto. Life and disability insurances are critical to buy at an early age because it will be cheaper than if you wait until a later stage, in addition to locking in your ability to be insurable in the future.
3. Manage your finances monthly to ensure no overspending or monthly expenses are putting you in the red. A deficient budget is a significant problem, but a surplus budget can also be. Ensure that you are maximizing your cash flow each month and allocating each dollar a task. Purchasing a home as soon as possible can be a smart move, but be careful not to deplete your emergency fund, especially if your monthly mortgage is more than 28% of your before-tax monthly income.
4. Complete documents for a will and power of attorney. A will and POA are necessary for everyone, but especially if you have children.
This stage is often the most challenging yet most important stage for people to execute. Your wealth is created during the accumulation phase, and actual financial habits are formed during this time. It allows us to establish the precedent for treating our money before we have it. As the saying goes, “people don’t plan to fail, they simply fail to plan.” Start by determining your financial goals to guide your decision-making and product selection. Once your goals are determined, here are some questions:
1. What yearly income do I want in retirement?
2. How much money do I need to generate my desired retirement income with a draw of 3-4%?
4. How will my assets be taxed at retirement? Will my tax bracket go up for down?
5. Are my investments in line with my risk tolerance?
6. Am I chasing returns to achieve my financial goals and taking on too much risk?
Each of the previous stages of the financial freedom pyramid builds upon the other. The focus during the distribution stage should determine if enough money has been saved to maintain your lifestyle through retirement and reduce recurring monthly expenses, such as mortgages and other loans. Historically, this phase consisted of the “three-legged stool”: social security, pensions, and personal retirement savings. Today, people rely on their wealth-building more than ever since social security decreases and fewer and fewer companies are offering pensions. Also, people are jumping from job to job to increase salary and skillset rather than remaining at a company. A safe income withdrawal rate from your portfolio used to be 5-6% annually, but experts now suggest 3-4% to ensure you do not run out of money in retirement. Another primary consideration that could address as early as the accumulation phase is managing costs for extended care periods.
If you’ve done well in the accumulation stage, you should be able to spend time with family, volunteer, travel, and check off your bucket list items. By this stage, we have decided when we will elect to take social security and determine if we will supplement your social security or pension with a lifetime income product. For some of our clients, an exciting mindset shift occurs from accumulating assets to a charitable giving and inheritance philosophy.
Questions that you should be considering:
What will I leave behind to my family?
How much is too much?
Do I need to use a Trust for estate planning?
What is the best way to give funds to a religious organization, charity, or non-profit?
While estate planning documents, such as wills, power of attorney, and trusts, are essential early in life, it is imperative to re-evaluate your estate plan’s wishes, beneficiaries, and structure.