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Wealth & Well-Being

Seeking Financial Independence in an Uncertain World

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Seeking Financial Independence in an Uncertain World

As the world at large has learned in recent months, unexpected events can alter the intended trajectory of our lives in a moment's notice.  These life-changing transitions impact our finances in many ways. When life transitions happen, being financially independent can help you weather the storm and regain the stability needed to begin adjusting to your “new normal”. 

Financial independence is typically defined as having enough resources to make working optional. Having this financial security translates into flexibility and freedom. It allows us to be self-insured against a financial catastrophe and take care of those we love when they might not be able to. It gives us the peace of mind that our spouse will continue to live comfortably in our absence. It even grants us the ability to set up our own long-term care in the way we feel most comfortable without becoming a financial or physical burden on our family members. 

The goal of becoming financially independent takes care and patience and may feel derailed or unattainable during these uncertain times. Below, we share best practices to improve the probability of success toward financial independence, both during these uncertain times and in the future. 

  1. Revisit Your Emergency Fund

 How do you feel about your level of cash reserves? Right now, you may be realizing how reassuring and helpful it’s been to have a healthy emergency fund, or how unnerving it is to not have enough. Use this time to establish a disciplined process for replenishing or adding to your cash reserves. Set up an “auto-payment” to yourself, such as a monthly direct deposit from your paycheck, or commit now to increasing reserves with the next salary increase, cash bonus, or tax refund. 

  1. Stay the Course with Your Financial Plan

Even in these unusual economic conditions, building a low-cost, globally diversified investment portfolio with the money that is earmarked for future spending is your best chance at achieving your financial goals.  Once you have an appropriate balance between risk and expected returns and an appropriate investment mix (or “asset allocation”) of stocks and bonds is chosen, stick with your plan in good times and bad. Unless your personal goals change, your investment mix should not change other than periodically rebalancing to keep on target.  

  1. Don’t Try to Play the Market

 Avoid pursuing “get rich quick” schemes with active bets and speculative ventures. The Wall Street Journalhas reported on young, do-it-yourself investors exhibiting increased interest in opportunistic day-trading,and alternatives such as stock optionsand volatility markets. Evidence suggests you’re better off patiently participating in efficient markets as described above, rather than trying to “beat” them through risky, concentrated bets. Over time, playing the market is expected to be a losing strategy for the core of your wealth. 

  1. Seek Personalized Financial Planning

 There is never a bad time to tend to your personal wealth, but it can be especially important – and comforting – when life has thrown you for a loop. Focus on strengthening your own financial well-being rather than fixating on the greater uncontrollable world around us. To name a few possibilities, we’ve continued to proactively assist clients this year with their portfolio management, retirement planning, tax-planning, estate plans and beneficiary designations, insurance coverage, college savings plans, and more. Some common examples include performing Roth conversions, suspending RMDs per the CARES Act for 2020, investing cash on the sidelines using dollar cost averaging, portfolio rebalancing, and tax loss harvesting.  Of course, your unique circumstances will influence your financial choices and decisions in the months ahead. But again, your most rational move is to stick with the robust long-term plan you’ve already got in place. Update it only when your life’s circumstances call for a change. 

A better way of life.

Perhaps the most appealing part of achieving a financially independent lifestyle is the peace of mind it grants you.  The knowledge that you have put the proper safety nets in place to support you through rough times makes you more likely to make sound decisions. 

If you are a current client, we thank you for trusting us with your business. If you aren’t, we invite you to get to know us a little better. At Northstar, we specialize in helping individuals and families manage life’s transitions, both the expected and unexpected, from the personal and financial perspectives. We believe in supporting and guiding our clients through life’s changes in such a way that improves their overall well-being and their financial situation. Schedule a time with us to learn more about who we are and how we help our clients here

Written by Robin Young in collaboration with Lexicon Content Development

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