What’s Your Financial Independence Number?


What’s your financial independence number?

Most in the financial world prefer to describe this vague sum as a retirement number, but as we’ve discussed before, the concept of retirement often carries a negative connotation that I would rather avoid. Our goal at FYI is to achieve financial independence in order to move on to more important life tasks, not simply retire to the golf course or couch. That being said, let’s not be swept off topic by the semantics of the wording.

How much money do you need to exit the rat race and live the life you’ve envisioned?

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The Conservative Mind & North Carolina’s HB2

In March, North Carolina’s General Assembly rebuked the city of Charlotte’s anti-discrimination ordinance with House Bill 2, a piece of legislation criticized by opponents as a discriminatory tool aimed at the LGBT community. The conservative right has defended the Public Facilities Privacy and Security Act – better know as the bathroom bill – as a means to protect women and children despite the complete lack of evidence suggesting such protections are needed.

The underlying current of the General Assembly’s actions is a fear of change. Depending on which segment of the conservative right you ask, the perceived basis for their intellectual leanings is religion, nationalism or traditionalism, among others. The actual foundation is none of the above, but rather the basic emotions of fear and anxiety.

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Why You Should Buy a Powerball Lottery Ticket Today

The Powerball lottery drawing for Wednesday evening currently has an estimated jackpot of $1.4 billion, which equates to a cash value of roughly $868 million. The group that runs the lottery – The Multi-State Lottery Association – estimates the odds at winning the grand prize at 1 in 292,201,338.

Quite possibly the best part of the Powerball jackpot reaching such absurd levels is the cascade of inevitable bizarre probability comparisons that statisticians and journalists seek out. You have better odds of hitting a hole-in-one on back-to-back par 3s, being crushed by a vending machine, becoming the president of the United States and being killed by a random airplane part falling out the sky. My favorite may be that you are far more likely to be struck by lightning while drowning than to win the Powerball.

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The Mortgage Deduction Myth

The first bit of sophisticated financial advice I received came from a neighborhood friend’s father in the early 1990s. My parents had provided me with the basics, such as saving for big purchases and an introduction into budgeting, prior to my teenage years, although I had no concept of the differences between a lease and mortgage. At least until one weekend afternoon when my friend and I overheard her father explaining to her mother then need to maintain a mortgage on their current home. Apparently they had the funds to pay down the debt, but he had no desire in doing so due to the tax deduction involved. In his opinion, getting the tax break in April offset the value in paying the mortgage off and losing the deduction.

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Endowment Effect: The Cost of Ownership

My mother is subject to arrive for weekend visits with a box or two full of my childhood memories crammed into the backseat. Some objects resonate with me, providing a brief window into my youth, but most carry far greater importance for her, almost as though she is projecting upon me how she thinks I should remember my childhood. It’s an incredibly motherly thing to do and one full of good intentions.

Early last year my parents came into town to see their grandkids, and once again, a large cardboard box with my name on it ended up in the foyer. Instead of the usual comments dripping with contrary subtext about doing whatever we wish with the contents, this time my mother implored me to check the value of the Star Wars toys included.

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Expenses: Value vs. Cost

My wife and I celebrated our 10-year anniversary last year with a trip to Europe. During our trek around Paris, making sure to visit the notable landmarks while placing a greater importance on sampling the local fare and wine, each purchase prompted an immediate calculation of our seemingly weak dollar to the mighty euro. At the time, the EUR/USD exchange rate hovered around 1.40. That 40 percent surcharge of sorts took a significant bite out of our finances over the course of the 10-day trip. Due to the euro’s free fall in the final months of 2014, the exchange rate has since plummeted to 1.10. I’ve prevented myself from calculating the potential savings – thus far – had we waited 12 months to celebrate our wedding vows.

In hindsight, though, the cost of the trip has now faded to the point where I would have to look through last year’s spreadsheets to see how much money we actually spent. The memories are as sharp as ever, however. That’s the true value of money well spent. It’s difficult to buy things that result in true happiness, and so for those items that do, the exchange rate involved is meaningless.

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Longevity Adds to Women’s Financial Strain

Occasionally I come across articles that are worth passing along. Kudos to Forbes.com for sharing financial advisor Wayne Fourman’s insight on the compounding issues facing the fairer sex. I have written about the gender pay gap and how marriage roles often derail a woman’s ability advance in her career field.

The financial strain that women endure is exacerbated by their longevity. Not only do women earn 78 percent of what their full-time male counterparts bring in, but women also live several years longer, which often leads to higher nursing care costs. Two items that Fourman discusses are especially troubling: (1) a single woman over 65 is five times as likely as a married couple the same age to fall into poverty; and (2) nearly half of single women rely on Social Security to provide 90 percent of their retirement income.

Those figures are disturbing. While it’s reassuring that women’s rights have progressed to the point that many Generation Xers and millennials have flooded higher education and put themselves in position to earn considerable salaries and chip away at the ever-present glass ceiling, the women of the baby boomer generation, as a whole, do not share the same optimism. According to the White House, only 15 percent of women between the ages of 25-34 had at least a bachelor’s degree in 1974. That number had jumped to almost 40 percent by 2014. The lack of an advanced education makes alleviating financial strain difficult, as most high-income jobs require such degrees.

Financial literacy thereby becomes critical in saving money to complement Social Security checks and understand the basics of monetary discipline. There is hope for our daughters, but we have to put forth the effort to help the women of the older generations live the final years of their lives with dignity.

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Treat Social Security as End-of-Life Insurance

First things first: let’s kill this notion that my fellow Generation Xers started spouting years ago about how Social Security benefits will not be around when they get to retirement age. It’s nonsense. I don’t factor Social Security into my retirement planning, but not because I expect those funds to be dried up (recipients will receive just 75 percent of their benefits starting in 2033 if the current fund erosion isn’t addressed).

I don’t factor Social Security into my retirement planning because I view the benefits as an insurance policy. That’s not some revolutionary idea, either. Social Security was established as a social insurance program in the 1930s after the 1929 stock market crash had essentially erased the savings of many senior citizens, dropping them into poverty. There have been various changes to the Social Security program over the last 80 years, leading to where we currently stand. The basics are a 6.2 percent tax rate for employees on income under $118,500 and inflation-adjusted benefits based on the last 35 years of salary.

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Plan Now by Envisioning Your Future

My wife recently returned from an extended girls’ weekend to celebrate a good friend’s 40th birthday. They left town on an American Airlines flight just before 7am on a Wednesday and returned around 6pm the following Sunday. Rather standard fare for a trip of this magnitude, although what intrigued me most wasn’t the actual vacation, but the level of planning involved. My wife attempted to quantify the amount of trip prep over the previous year by offering some hard statistics on the communication between the quartet: approximately 150 emails, 300 texts and five planning meet-ups.

These aren’t single women in their 20s with nothing better to do than sit around and plan a five-day trip down to the infinite details. These are professional women with more chores than time available who happen to be mothers of both young children and grown men, and yet they were able to carve out time in their hectic schedules to daydream and plan a short vacation that would serve as a temporary break to their daily stresses and responsibilities.

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Savings Rate Concerns

The U.S. Commerce Department recently announced that the personal savings rate across the country had risen to 5.8 percent in the month of February. The only positive bit of news in the report, however, is that the savings rate improved rather than declined. The Wall Street Journal’s Jeffrey Sparshott highlighted the fact that heavy snowfalls and otherwise poor winter weather in general is likely responsible for the uptick in savings. If you are unable to leave your house, it’s difficult to spend the money in your pocket.

The more troubling news is that the 5.8 percent mark is seen as a quality figure. The personal savings rate has fluctuated roughly between 2 percent and 8 percent for 14 of the last 15 years. Only in 2013 did the savings rate extend beyond that 8 percent threshold, cracking 10 percent momentarily. To be fair, interest rates and inflation have long played a role in our country’s savings rate. The personal saving rate was consistently above 10 percent during the 1970s due to high inflation. With interest rates at all-time lows for an extended period of time, the potential return on cash is not worth the effort, or so it appears to many Americans.

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