| Have you ever met with a financial planner? | | | | For example, $5,387,234.23.You will look at |
| If you haven't, you can expect to go through | | | | the plan and you will think, "My gosh, there |
| a certain process. You will be asked about | | | | is no way I can do this!" You may get started |
| your financial goals. One of your goals will | | | | doing a few things that the planner |
| likely be that you want to plan for | | | | recommends. But it won't last very long and |
| retirement.You will be asked about your | | | | you'll go right back to doing things the way |
| present income. You know the answer to that | | | | you've always done them.So what's wrong with |
| one. You will be asked about your expenses. | | | | the traditional financial planning process? |
| That one will be tough. Everyone | | | | Plenty! First of all, it's ridiculous to try |
| underestimates their expenses because most of | | | | to look decades in the future to predict |
| us have no idea what we're really spending | | | | what's going to be happening in your life. I |
| and what we're spending it on.You will be | | | | don't know about you, but I don't know what's |
| asked about your assets -- what you own. You | | | | going to happen tomorrow, much less decades |
| know what you own, but it will be tough to | | | | from now. |
| put a market value on some of it. You will be | | | | |
| asked about your liabilities -- what you owe. | | | | Also, traditional financial planning doesn't |
| For most people, facing the reality of their | | | | take into account what financial freedom |
| debts is rather daunting.You will be asked | | | | actually is. You're financially free when |
| when you want to retire. I would say the | | | | your passive income (money you don't have to |
| average age most people give is 55 years old. | | | | work for) equals your expenses.So if you have |
| I don't know why that is, but 55 seems to be | | | | no passive income right now and your expenses |
| a popular number. Then the financial planner | | | | are $50,000 a year, and you can get a 10% |
| will tell you that you will need to | | | | return on your investments, you need to |
| accumulate enough money to live another 40 or | | | | accumulate $500,000 to become financially |
| 45 years after retirement. After all, if you | | | | free. |
| live to 90 or 95 you don't want to run out of | | | | |
| money, do you?You will also be asked about | | | | If you can get a higher return on your |
| your risk tolerance so that the planner can | | | | money, you can reduce the amount that must be |
| determine what kind of annual rate of return | | | | accumulated. If you settle for a lesser |
| to factor in for your investments. If you say | | | | return because you're risk averse, you will |
| you have a low risk tolerance, the planner | | | | need to accumulate more. You should also |
| will consider low-risk investments that will | | | | consider inflation. Of course, if you invest |
| give you a lower rate of return. If you say | | | | for inflation, it will already be factored |
| you have a high risk tolerance, investments | | | | into your investments.Understanding financial |
| that could provide a higher rate of return | | | | freedom as the point where your passive |
| will be considered. You can't have it both | | | | income equals your expenses is a much more |
| ways. If you don't take risks, you can't get | | | | realistic way to look at it. Most people who |
| a very high rate of return on your | | | | are committed to being financially free can |
| investments.Then all that information will be | | | | achieve their goal in a matter of a few |
| dumped into a financial planning software | | | | years, not decades.Copyright 2005Larry Holmes |
| program. The software will print out a plan | | | | invites you to visit |
| that will say you need to accumulate several | | | | |
| million dollars by the time you're 55 years | | | | Your common sense guide for financial and |
| old. Oh, and it will be exact to the penny. | | | | investment success. |