financial independence
DESCRIPTION
Financial independence presentation that I made for a few friends and family members; I don't claim to be an expert at all, but this is some of the fun and interesting tidbits that I really liked about financial independence. Your results may vary; and your tastes may be different then mine, but I really like the concept of asset allocation in the passive senseTRANSCRIPT
Financial Independence
A Brief Introduction to Financial Independence and Ways You Can Achieve It!
Financial Independence
• Why Become Financially Independent? • Financial Freedom: more choice on how to spend your money
• Employment Freedom and Job Freedom
• Reduction of Stress and Healthier Lifestyle
• More Time To Pursue What You Love
• Become a Humanitarian!
• Retire!
Employment Independence
• Financial Independence leads to Employment Independence• You can choose the job that you want!
• You can choose a more fulfilling job!
• You can work more on solving humanity’s problems!
• You can quit!
Retirement
• Financial Independence contributes to your ability to pursue retirement how and when you want it
• Retirement as state of mind; financial independence as state of being• During retirement you can still work or choose whatever you wish
to do.
• Financial independence grants you that ability to ease your mind to pursue what you want
Two (Combinable) Ways For Financial Independence
Asset Accumulation Expense Reduction
• Gather revenue generating assets until the generated revenue surpasses living/liability expenses.
• Gather enough liquid assets to then sustain all future living/liability expenses
• Combining passive + active incomes to be able to generate your threshold for living a financially independent life
• Another approach to financial independence is to reduce regular expenses while accumulating assets, to reduce the amount of assets required for financial independence.
• Reducing expenses, combined with asset accumulation, allows you to achieve financial independence faster
Difference between ‘active’ income and ‘passive’ income
• Active income/Earned Income• Generated from active
work/labor
• Eg Paycheck or Salary
• Active income is extremely useful if:
• You use it to purchase assets that help generate passive income
• Using paychecks to help purchase a rental property, for example.
• Passive income assets• Is generated even when you
are not actively managing your assets
• EG collection of rent, stock dividends, bonds, pensions, etc.
• Greater tax benefits
• Designed by govt to encourage investing
Compounding
• Why save? Because of compounding!
• Save early, live below your means,
• 401K/Roth IRA/Other Tax Deferred Accounts: Good Candidates for Compounding
Active Management
• For people who like to actively trade or pick stocks
• For people who have a lot of wealth and has the desire/ability to make more money.
• For people whom understand risk and are better risk takers.
• For people who believe they (or another money manager) can beat current indexes of returns
Passive Management
• For people with busy lives• Raising children
• Working hard jobs
• For people who aren’t good with picking stocks or analyzing the market
• For those whom are hyper-emotional and swing too far with the market
A Theory I Like Right Now: Asset Allocation
Lazy Portfolios: Good Examples of Passively Managed Portfolios
4-Core Funds 3 Fund Portfolio David Swinson’s Yale Portfolio
My Personal Bias Against Picking Stocks: I’m NOT GOOD AT IT!
Benefits of Low Expenses Ratio
Important to remember: keeping your expense ratio low will allow you to save a greater amount of money for retirement.
This is due to the nature of compound interest: the less money taken from you, the more yield you receive.