Category: Financial Independence

What’s Your Financial Independence Number?

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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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Reliving Your Glory Days

I was early in my formative years in the spring of 1985, although my palate for rock music was already well-defined. Having older teenage brothers has that effect. My most vivid music memory as a child was listening to Dire Straights’ “Walk of Life” over and over again on my Fisher Price turntable record player. The angst I felt in trying to position the brown center knob just right so it wouldn’t fall down while playing my collection of three 45-rpm records was replaced with masculine pride as I belted out verses about topics I knew nothing about.

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The Psychology of Stress

In 1975, Dr. Salvatore R. Maddi, a psychologist at the University of Chicago, and his team of researchers were granted the privilege to study employees at Illinois Bell Telephone (IBT) by Carl Horn, the company’s vice president at the time. Maddi’s intent was to research how individuals responded to high levels of stress, and IBT provided an ideal platform due to the U.S. Justice Department’s antitrust lawsuit against AT&T in 1974. The divestiture and deregulation were eventually mandated in January 1982, although IBT began its preparation 12 months earlier, slicing its 26,000-employee workforce nearly in half.

By that point, Maddi and his staff had built a database of background information on 430 employees over the previous six years, a list that included both sexes and ranged from supervisors and managers to executives. Despite incredible upheaval and personnel changes throughout the company in the following months and years, Maddi was allowed to continue his research until 1987. The results were both fascinating and groundbreaking in nature.

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Vacation Time a Limited Commodity

Criticize the French and Germans if you so choose, but at least give them credit for getting their vacation on. An Expedia study this month found that residents from France, Germany, Denmark and Spain received a median 30 days of vacation in 2014. U.S. workers, on the other hand, received just half that many. The comical aspect of the findings is that while the aforementioned European residents took advantage of all 30 vacation days, their U.S. counterparts only took 14 of their available 15 days. To help put those totals in context, a French worker will take a full year of vacation more than his U.S. counterpart over roughly 24 years of his career.

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Millennials’ Savings Rate in Decline

A troubling report from Moody’s Analytics this week details how the millennial generation – essentially young adults under the age of 35 – has a negative two percent savings rate. The age group saving the most is the 55-and-older crowd (13 percent), followed by the 45-to-54 group (six percent) and the 35-to-44 group (three percent).

These figures shine a light on the discrepancy between the stock market boasting all-time highs in recent years and the inability for the average American to save enough to even consider putting his or her money in the stock market. The Moody’s report notes that savings rate for the same age bracket in 2009 was 5.2 percent following the recession. It’s an interesting dynamic, as the date seems to suggest the savings rate declined as the financial market benchmarks improved over the last five years. Stagnant wages and unemployment have played a role, although as the Wall Street Journal points out, the math doesn’t add up when comparing the millennials with my Generation X. Millennials are earning nine percent less, when adjusted for inflation, than Gen Xers did in 1995, but yet their net wealth is down 42 percent.

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Cutting Through the Financial Jargon

Derivatives. Futures. Single premium immediate annuities. Common stock. Preferred stock. Government bonds. Corporate bonds. Commodities. REITs. Options. Swaps. Short sales. P/E ratios. Dividends. Net profit margin. Exchange rates.

Welcome to the world of financial jargon.

Investopedia.com’s dictionary includes 14,688 definitions, ranging from “abnormal earnings valuation model” to “zero coupon inflation swap.” The lingo is thick and daunting, oftentimes serving to dissuade average folk from entering the financial world with their hard-earned money. The brazen can quickly fall in neck deep, taking risks based on random blurbs in Forbes magazine, while the more cautious of us can feel so unprepared that financial advisors are the only option to navigate the complex terrain. It’s no wonder so many people dip their toes into the financial markets and get burned.

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Forget Retirement. Strive for Financial Independence.

My first job out of college was working as a golf professional at a semi-private club in North Carolina. The course was open 365 days a year, although during the winter months, there was often a frost delay in the mornings. While it typically took the thermometer reaching 40 degrees with a bright sun in the sky to melt the frost on the greens and make the course playable, I was oftentimes tasked with brewing multiple pots of coffee for the morning crowd before the sun came up and before the temperature rose above 30 degrees.

This group of men – ranging from as few as six to as many as 12, depending on the day – would wait for me at the gates at 6:30am, even if they knew the frost would linger for another three hours. They were all retired, all in their late 60s or 70s, and weren’t about to let some cold weather disrupt their weekly routines. As you can imagine, I listened to countless tall tales and crude jokes during these mornings over a period of seven years. I soaked up a wealth of wisdom and knowledge that comes with living on this planet for the better part of a century; advice ranging from love and relationships to politics and religion.

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