I really am grateful for the comments I received in response to last week's Note, especially those which addressed my introduction -- it really is true that a happy confidence is the best political "argument" that any of us could make about our positions.
In the meantime, I'm here to sort through the chaff for you, and help direct the tax traffic :).
Speaking of taxes, July 1 (Monday) ushered in a whole host of new state tax provisions. A good rundown is here: http://www.pewstates.org/projects/stateline/headlines/new-tax-laws-take-effect-july-1-85899486643
Since we serve clients in many different states, it's worth checking out to see how you may be affected. Some nasty little surprises in there, unfortunately.
Which, by the way, we can help with. See the end of this email.
More about financial independence today (since it was so well-received last week), but before I get there, I'd like to speak some encouragement to you. A few people wrote in saying that they were feeling pretty dispirited about their personal situation ... and that anything discussing "financial independence" really seemed like a pipe dream, and unrealistic for them.
Don't give up.
With all of the families in this economy who are going through hard times, it's easy for them to believe that there isn't a light at the end of the tunnel. But did you know that most millionaires were previously bankrupt at some point? (Just Google it, you'll see.)
In fact, it's often the "fire" of these times of trouble which serve to clarify things--and get you making smart decisions, perhaps for the first time.
So, if you're feeling the financial heat right now, look out for the blessings in the midst of pain. I know it's hard -- but chances are, you're being reminded of what's REALLY important...and often, seeing this again can be a launch pad for living the kind of life that you really want to live.
So, go for it!
Tony Khait, CPA, PFS's
"Real World" Personal Strategy Note
Planning for Financial Independence
Money has no value unless you've got the time and good health to enjoy it. In fact, if you have to be poor, would you rather be poor now or at retirement? By planning carefully and investing wisely, you shouldn't have to make this choice.
I believe that you ought to save early and often, making regular scheduled investments in the stock market through the use of mutual funds, or an actively-managed account.
Over the long term, the U.S. stock market yields an annualized return of about 8% (assuming dividends are reinvested). Yes, things are volatile right now ... but "market risk" is not the greatest danger to your savings - inflation is the greatest danger. The value of your retirement erodes at a rate of roughly three or four percent every year.
But the stock market has always recovered from even the steepest declines.
Here's an historical note for you (pertinent now): the worst one-year period for the Dow ran from 01 July 1931 to 30 June 1932. It lost 68.92% of its value. Would you have bought stock then? If your goals were long term, that's exactly what you should have done. The best 30-year period for the Dow ran from 01 July 1932 to 30 June 1962, during which time it offered an average annual return of 14.34%.
Becoming Financially Independent
Reaching financial independence isn't always easy. It takes time and work. You cannot accomplish your goal of achieving it by wishing. It takes doing. It takes being committed and absolutely determined to act.
One way you can act now, is to take a look at your personal expenses. Here's some tips to cut them...
* If you and your partner both work, try to live on only one income. Invest the other.
* Save an emergency fund, but don't make it too large. I like a small (one-month of expenses) emergency reserve, with everything else invested in mutual funds.
* Never borrow money, except to buy a home. If you use credit cards, use them only as a convenience, not to borrow.
* Pay yourself first. Every month, invest some portion of your income for your future.
Finding more money to actually invest is the best way for you to reach financial independence. And one great way to find extra money is to cut back on your existing expenses.
Yes, you can achieve financial independence, but you can't get there overnight, and you can't get there without setting goals and making sacrifices.
So, start now.
To your greater independence...
Tony Khait, CPA, PFS