By: Wendy Wan Turk
Every day, I ask each and every client this question: "When do you want to retire?"
For most, they think of “retirement” as a far off dream that they’ll someday reach. But what I’m really asking is, "When do you want to be financially free? And how can you make yourself financially free, not just when you’re 67, but in your everyday life?"
For me, financial freedom is having my money work for me, and not being a slave to my things. It isn’t being able to buy anything I want, but rather the ability to minimize financial stress and enjoy my day-to-day life. Money shouldn’t be viewed negatively; it should enable you to do the things you want to do.
In every meeting, I tell my clients that the perfect financial plan should allow them to not only save for a long-term goal like retirement, but also allow them to live a fulfilling life along the way, because ultimately, what is the point of working and sacrificing, only to someday start living your life at age 67? Personally, I don’t see myself retiring in the conventional sense, not because I’m not saving for it, but because I truly enjoy being a financial planner, day-in and day-out. Since I don’t see myself riding off into the sunset one day, I try to find ways to be financially free in my everyday life.
A recent CareerBuilder survey finds that 78% of workers are living paycheck-to-paycheck with amounts of personal debt growing, causing not only stress and health problems, but also keeping them from reaching longer term goals, like buying a house, having kids, and retiring. As a gift to yourself this holiday season, the best one you can give is the gift of financial freedom.
The B-word doesn’t have to be bad: Budget in the Fun!
Inevitably, this word comes up in every client meeting I have as well: Budget. I think, generally speaking, people are afraid of the B-word because they think it will take all the fun away from daily life, but that doesn’t have to be the case. I’ll come across clients who take “long weekend” trips nearly every month, or the family that has annual passes to Disneyland every year, and rarely do those costs ever make it into the budget because most people consider these one-time expenses, one-time expenses that are often underestimated but tend to actually be a large part of annual spending.
However, life should have these great experiences, whether it’s trying the new fancy restaurant, a quick trip to Catalina Island, seeing the play Hamilton, or buying the new iPhone X. Yes, these experiences cost money, but are truly the things that bring us happiness, which is why it’s so important to budget in the fun.
Often, people feel constrained by what you don’t have or what you can’t do. If only I had this…or that…or the other. By building a “Fun” category into your budget, you are giving yourself free reign spend this money. This money is meant to be spent on fun and only fun things! It can be a set dollar amount per paycheck or a percentage of earnings—whatever works for the individual, and ideally it should be set aside so you can see the amount you have that is separate from your daily spending.
Say you want to take a holiday trip to Mammoth. If there’s enough money in the fun account, go for it! If not, you can see how far you are from the goal and make it a point to wait for the goal, or even sacrifice something else in your regular budget so you can reach the goal. Without seeing an actual, hard number, it’s easy to overspend or justify that quick weekend trip as a one-time expense even though it costs the same amount as your monthly rent or mortgage.
Plan for Emergencies
By definition, emergencies are serious and unexpected, but I think we all know emergencies will inevitably crop up, we just don’t can’t predict the timing or the situation. I recently had a spate of emergencies starting with a trip to the emergency room and ending with the purchase of plane tickets on one day’s notice to visit a dying relative, all with another relative’s funeral thrown in between. Plus, all of this occurred in the same month that I host Thanksgiving dinner for 15 people, and with the Holidays around the corner. Through all this, the thought that repeated itself in my mind was how fortunate I am to be able to handle these emergencies without a second thought of how it will impact my finances. This ability to weather the emergencies in life didn’t happen out of luck, but purely from good planning.
I’m sure everyone knows they should have emergency savings, but I think few truly have the recommended 6-12 months expenses sitting in a bank account, and in fact find it daunting to try to save that much. It may feel that $100 a month going into a savings account is pointless when you’re told you should have $30,000 just in case.
Approaching your emergency savings should be a step-wise process. Start with small, tangible goals, like, How much will I need to buy a new set of car tires? Or, How much will airfare cost to see a loved one? Then build upon that to the next worst-case scenario like, What is the out-of-pocket maximum on my health insurance plan? The idea is to keep saving until you can cover every big emergency you can think of, giving you a sense of accomplishment and peace of mind with each step, rather than having an insurmountable goal of $30,000, saved by tomorrow.
Potentially, with the right plan, you’ll reach the day where you’ll be financially free from an employer, but in the meantime, start this holiday season and give yourself a plan to help reduce stress and promote good health—the gift of financial freedom in your daily life.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Gerber Kawasaki Inc, a registered investment advisor and separate entity from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Gerber Kawasaki, 2716 Ocean Park Blvd. #2022 Santa Monica, CA 90405. Contact us at (310) 441-9393.