Financial independence. We all know we want it, but what exactly does it mean? And how do we achieve it?
“The truth is, financial independence can look different for every person,” explains Victor Orozco, Managing Partner at Bair Financial Planning. “That’s why we work with all our clients first to define it, and then help them find strategies to work towards it. Some people truly enjoy being part of the workforce, while others just want to hurry up and retire. What we find to be true for all of our clients is that achieving financial independence is about doing what you want to do in life, not what you feel you have to do.”
But how do we get started on the path to financial freedom? Here are Victor’s Five Tips for Pursuing Financial Independence:
- Know Your Debt.
Victor’s first tip is to get up close and personal with your debt. Whether it's credit card debt or student loans, it’s vital that you know the various interest rates associated with each account.
“Building awareness around your debt is key,” explains Victor. “Then you can decide whether to take what we call a ‘snowball’ approach or an ‘avalanche’ approach to becoming debt free.
“With a snowball approach, you focus on whatever debt has the smallest balance, regardless of interest rate, and divert any extra payments there. This is great for the personality that needs to check boxes and feel like they are making an immediate impact on their debt. With the avalanche approach, you look instead at the debt with the biggest interest rate and chip away at that. This is better suited to a person who is comfortable with delayed gratification, in order to achieve a bigger, long term effect.”
2. Know Your Mortgage.
When was the last time you evaluated your mortgage payment to see if you’re getting the best interest rate? If it was pre-pandemic, Victor definitely suggests looking into refinancing options.
“We are seeing clients save thousands of dollars over the life of their loan simply by adjusting their mortgage rate. The monthly savings may seem smaller but the lifetime interest can really add up,” explains Victor. “The market is still feeling the effects of the pandemic so rates are often low enough to make a substantial difference.”
3. Know Your Benefits.
Knowing your benefits is more than knowing what your co-pay is when you go to the doctor. Truly understanding your benefits means making sure you’re taking full advantage of any benefits and matches being offered by your employer in terms of health insurance, life insurance, and more.
“We love when clients reach out when it’s open enrolment time because it’s a great opportunity to talk about the connection between overall health and wellbeing and financial independence. We want to make sure that clients know what they have access to -- especially in terms of previously taboo subjects, such as mental health coverage. We know that getting the services they need will help them be healthier and more productive overall.”
4. Know Your Flow.
If you want to be financially independent, Victor explains that you MUST know your cash flow. This means getting to know your pay check, learning what gets deducted, and using the finance app of your choice to track what goes in and out of your accounts. To get started, Victor suggests scheduling a “financial date” with yourself or your significant other to really dig deep into monthly expenditures.
“We know that analysing cash flow can be overwhelming or intimidating for some people, so we suggest pouring your favorite drink, alcoholic or not, and making an evening of it,” says Victor. “Ask questions if you don’t understand and give yourself some grace; you may not understand everything right out the gate, and that’s totally normal.”
5. Know Your What If.
Although it can be uncomfortable to talk about, Victor explains that achieving financial independence should include a plan for your family to be cared for should something unforeseen happen to you.
“Of course, it’s not a scenario we want to look at but tragedies do happen,” says Victor. “Not having enough support in place can really be an issue for families caught unprepared. That’s why it’s important to think about ways to get your family to financial independence, even if you don’t have the opportunity to reach it yourself.”
Have questions or comments about Victor’s Tips for Pursuing Financial Independence?
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