Freedom, Choice & Flexibility – The Trifecta
The Hare sits down with Money and Finance Magazine to discuss the desired life trifecta; Freedom, choice and flexibility.
When reflecting on the many conversations shared with both clients at Fox and Hare or the immeasurable number of friends, family and acquaintances who are always looking for advice; I’ve discovered three little words that make up the lions share of people’s aspirations: freedom, choice and flexibility. I’ve learned that the modern corporate crusader has little interest in climbing the corporate ladder just for the sake of it. And I’m now fairly (99.5%) certain that nobody is out there enduring the desk-bound drudgery of the average 9-5 just for the hell of it.
While partaking in these conversations and reflecting on them afterwards, I’ve arrived at what can only be described as quite a disturbing conclusion. Everyday millions of people are waking to the sounds of alarms, battling the daily commute and heading downtown to sacrifice their freedom, choice and flexibility in order to achieve freedom, choice and flexibility. It’s the true paradox of the modern workplace, a glitch in the matrix if you will. And I regret to inform you that these sacrifices alone will not be sufficient. If you (like my clients and acquaintances) are searching for the unicorn trifecta of freedom, choice and flexibility, you’re going to need a passive income.
I’ve heard of passive income, but what actually is it?
In short: income generated from means other than personal exhaustion! Examples include but are by no means limited to the rents from investment properties, dividends on shares or the interest from high interest savings accounts. You should think of passive income as the sherpa on the journey from wage slave to free time connoisseur. Sadly I can’t squeeze the ‘Passive Income for Dummies’ guide into an article appropriate word count but I can ask and (help answer) the four questions that I consider integral when launching the hunt for this particular prize. Let’s go.
- How much is enough?
So how much passive income do you actually need? Obviously the answer varies significantly from one person to the next and ‘enough to sip Pina Colada’s in the Maldives for the rest of my life’ is not a real answer. The simplest way to approach this question is to first calculate how much you need to cover fixed costs (bills, rent, etc) every year. Set this number aside and determine (again annually) how much cash you’ll need for life’s little pleasures (eating out, clothes, etc). Finally, you’ll need to establish how much you’re looking to splash every twelve months on bigger ticket items (holidays, lifestyle purchases, etc). Looking at these three areas will give you a good picture of the figure you should be working towards. If you want to put some crude numbers around a target to work towards, investing $1,000,000 returning 6% will provide you with $60,000 of passive income a year without eating into the initial investment.
- What’s the most common problem when getting started?
Ironically, when we’re working toward long term gratifications, it’s the short term ones that will trip us up. For you to achieve that sense of freedom, enable choice and embrace flexibility, a degree of structure, discipline and consistency is required. In the absence of a structured game plan, it’s very difficult to achieve the goals you set yourself. It’s challenging to envisage the impact of eating out twice a week instead of once, taking food to work vs. buying it every day or purchasing a new pair of shoes every 6 months instead of monthly. But you should consider the consequences of satisfying an insignificant urge. Are all those extra dollars costing you something that is truly important?
- When is the perfect time to start?
NOW! but also never. Money is emotional and the relationships with it can vary wildly from person to person. What may seem logical to one may not to another and the sense of being overwhelmed when considering all the options is all too common and more than acceptable. What’s not acceptable, however, is putting off action due to laziness, option paralysis or fear. Create a strategy that aligns to your goals and be confident that implementing all of the various steps will move you forward. Add discipline, structure and adhere to a consistent method for best results. If investment strategies are just not your forte, you really can not be bothered to work it all out or just plain old CBF seek the help of a professional. Babies will be born, storms will hit and life is just not going to slow down with those curveballs. The time will never be perfect, so why not just start now?
- Is your super pulling its weight?
It’s a slight deviation from passive income but with longer turn goals front of mind, it’s really important that you get your super sauce bubbling away as soon as possible. Given that you’re unable to touch it until you’re sixty-seven your investments will have a long time to marinate. Every superannuation account has two key ingredients that you should never forget! Compounding interest and tax concessions. But what are they and why should you care? Compounding interest (described by Einstein as the 8th wonder of the world) is the re-investment of generated income, which in turn generates more income, to be re-invested and generate yet more income. Tax concessions are reductions in your annual tax liability. Provided by the government to help the population remain financially independent well into their twilight years they can be highly effect tools in your tax reduction arsenal. Bearing in mind that your superannuation account could be the knight in shining armour when it comes to long term freedom are you sure that you’re paying enough attention?
In order to be truly free, have the flexibility you desire and the choice to live the life you aspire, you’ll ironically need a degree of structure and discipline. Set yourself realistic, specific and measurable goals and formulate a game plan to ensure success. Above all, Take Action! An inch of movement will bring you closer to your goals than a mile of intention (Dr Steve Maraboli).
By Glen Hare
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