How to Declare Your Financial Independence – Next Avenue

(Next Avenue is republishing this 2014 blog post, timed to July 4th.)

As the 4th of July nears, what better time to talk about a few ways that could help people in their 50s or 60s declare their financial independence within the next few years?

You may have noticed that the goal of financial independence and its close cousin financial freedom seem to be replacing the traditional goal of retirement.

Freedom and freedom money really resonate a lot more than retirement when we do focus groups, said Chris Brown, a partner at the Hearts & Wallets financial services market research firm.

Its not just about investing. Its about your life priorities and connecting your life to your finances to help enable those things.

David Tyrie, Bank of America Merrill Lynch

MorePlan for Financial Independence, Not Retirement

The financial advisory industry is onto this, too. Merrill Lynch, for example, has announced a holistic approach for clients, known as Clear. Its not just about investing. Its about your life priorities and connecting your life to your finances to help enable those things, David Tyrie, head of Retirement and Personal Wealth Solutions for Bank of America Merrill Lynch, told me.

Some smaller financial advisory firms say theyve been doing this kind of client counseling for years. We believe its the right way to manage money, said Dave Richmond, a founding partner at Richmond Brothers in Jackson, Mich.

A guy who knows a lot about financial independence and just began living it is financial writer and editor Jonathan Chevreau. I relayed his advice last year when Chevreau was the editor of Canadas MoneySense magazine (the northern version of our Money) and had just published the U.S. edition of Findependence Day, a fictional finance novel.

But on May 20, 2014, a month after his 61st birthday, Chevreau left his magazine job and declared his own financial independence.

MorePlotting Your Next Move for Unretirement

Although hes now blogging twice a week for MoneySense (contracting back 40 percent of what I was paid as a salaried employee), Chevreau is otherwise taking the summer off to watch the World Cup, travel to Turkey and read books on semi-retirement. After that, he intends to work when he wants and only as much as he wants, writing fiction and nonfiction and taking on speaking engagements.

Its experimental, Chevreau said. Im learning as I go.

In truth, he noted, his financial independence timing wasnt particularly mine. But it was pretty close. I wouldve preferred to go another year, he said.

Now that hes living the goal he novelized, I asked Chevreau whether hed amend any of the five rules his book laid out on achieving financial independence:

1. Pay off your home in full.

2. Find multiple sources of income for retirement.

3. Develop guerilla frugality habits.

4. Save 20 percent of your gross income.

5. Invest with a Lazy ETF portfolio selecting, say, three Exchange Traded Funds (a U.S. stock fund, an international stock fund and a U.S. bond fund) and holding onto them, rebalancing as needed.

Chevreau said he is not only sticking by them, hes been living them, with a strong debt aversion and an allergy to excessive spending. He just sold his old Volvo and bought for cash a two-year old Camry Hybrid. Its gas mileage is three times better than the Volvos, said Chevreau.

Now that hes not employed full-time, Chevreau said hes an even bigger fan of the Easy ETF portfolio.

When I was working full-time, I was constantly checking financial websites and listening to stock-oriented podcasts from The Motley Fool or Jim Cramer, he noted. Now, Id prefer to have the Easy ETF portfolio in this phase of my life and not have the anxiety of individual stocks going up and down.

If youd like free electronic help to achieve financial independence, I have two suggestions:

Freedom$. This is a nifty iPhone app from the Hearts & Wallets folks. (You can find it in the iTunes store or at GoFreedommoney.com.)

Freedom$ lets you see how youre doing compared to others your age. More important, it quickly shows you how much sooner youll achieve financial freedom by adopting any, or all, of the 10 financial behaviors of the most successful people in the annual survey of households the firm has conducted (20,000 have been surveyed over four years).

You start by just entering your age, your total assets and your total consumer debt (other than your mortgage). Then, Freedom$ calculates your Assets to Income Ratio. The goal: to become what Freedom$ calls a 10-timer, where your assets equal 10 times your income.

Next, you get a Freedom Score: an estimate of how many years until youll achieve financial freedom. This number that will shrink if you take on the good behaviors and get extra points for doing so. For example, Freedom$ says, try to save in a burst by turbocharging the amount youre putting away, something that could be easier once youre no longer paying for your kids college education.

Burst saving is three times more common among 10-Timers 64 percent of them did it making it one of the most important differences between 10-Timers and others, said Brown.

The whole process should take about 30 minutes, longer if you want to give yourself electronic reminders to take actions thatll help you find financial freedom sooner.

FlexScore is an excellent, free site to help you with day-to-day money management. I wrote about it last fall.

Like Freedom$, FlexScore also calculates a score for you and shows you how to raise the number. Since I first talked about FlexScore, the company has now also created FlexScore Pro, a version financial advisers can use with their clients.

Have a safe and happy 4th and heres hoping you achieve financial independence when you want.

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How to Declare Your Financial Independence - Next Avenue