A few days ago, I was asked about my attitude towards money. At the time I was in a pharmacy talking to the checkout person. The question was unexpected, and it gave me pause. Having spent time in the financial services industry for almost 2 decades, I realized again that it's a very good question to periodically ask ourselves, with the caveat that we must be brutally honest when we answer it.
Over the years, my attitude towards money has changed quite a bit. It started from a mindset of scarcity - to today where I believe that there is more than enough money in the world for every person to reach their own financial goals. (On a sidenote, the global financial system is creating more and more money every day). So, while money as we understand it will change form and shape, (think Crypto) there will always be enough of it to go around.
The diagram below is the holy grail for financial freedom! I know that might sound a bit grandiose, but it really is. This is the foundation that we must put in place and upon which we must build. If you can implement this in your life you will never worry about money or your future ever again. It encapsulates all the financial transactions, commitments, dealings and plans that we will have during our entire life.
1st Question: What do you consider to be financial freedom?
Each one of us might have a different definition of financial freedom.
My definition is as follows:
The ability to determine your own lifestyle as you see fit. Having choices and being able to exercise those choices. Never having to worry about your own needs or those of your family. Sleeping well at night.
Ok, here is the blueprint:
Let's run it down quickly:
The 1st quadrant is all about your family's welfare when you are not with them anymore. Here we are talking about Life Insurance. The premise here is that you actually care and would like your family and those close and important to you to be able to carry on with their plans, dreams and lifestyle that they had while you were with them. Your wife or husband can stay in the house that you raised your family in, your kids can continue to do what they love, be it sports, clubs or anything else that they enjoy doing. Losing a loved one is very traumatic for any family, especially if it is a husband, wife, father or mother. The idea behind life insurance is to give them the ability to deal with the grief without the additional worry about their finances. A simple way to think about it, is that the proceeds from Life Insurance replaces your salary when you are gone.
The 2nd quadrant is all about you. Think retirement planning - long term savings. The average life expectancy in the Americas is 77 years; Europe 79 years; Asia 73.6 years; Africa 63 years and Oceania 79 years. (ourworldindata.org/life-expectancy)
If you want to retire in your 60's, then you have maybe another 20 years left to live.
These are your golden years or your miserable years. These are the years where you do the things that you love or listen to your daughter in law complain to your son that you are not contributing to the family finances and are a burden to them. The choice is yours - do you want to be and inspiration or a burden?
The next area that needs to be addressed is the welfare of your children. It starts the moment they are born. The intense spectrum of emotions that parents feel about their children are immense. There is awe and responsibility - it dawns on you that you have to dedicate 20 years of your life to get this little one to become a functioning, productive member of society. There is hope - you see the immense potential the kids have, and you hope that they will live up to all of it. Then there is anxiety and concern - what if something happens to them?
So, as a parent you start thinking about schooling, colleges, universities, the sports they play, the hobbies they have etc. Most children will join society at 19 years give or take a year or two. Some will attend University or college - which means they will join at about 23 or 24 years.
When you ask a child what they would like to be when they grow up, you usually get a response like - a doctor, engineer, fireman, astronaut etc. (Funny, I've never heard a kid says that they want to be a lawyer). These are the dreams of our kids, and it is our responsibility as their parents to help them to reach for it. This responsibility can be slightly overwhelming, but it is also the greatest journey of our lives!
The final quadrant is all about our own aspirations.
The things that we talk about with our friends and family, the things that we do or would like to do. The trips we take or would like to take, the car we drive or would like to drive, the charity we do or would like to do.
Most of us, unfortunately focusses on these things when we think about financial freedom. We think about things and status and social media posts.
The irony about financial planning is that if we take care of the 1st 3 quadrants the last one happens automatically. This part of your life is the results of the foundation that you put in place to support it.
Think about the 1st 3 quadrants as the roots, trunk and branches and the last quadrant as the delicious fruits!
So, in brief, this is a very big picture view of the foundation that you need to lay down in order to attain financial freedom (peace of mind).
During the next few weeks, I will touch on the subjects of budgeting, life insurance, long term savings, goal specific savings and creating additional streams of income.
If anyone would like to discuss anything mentioned here in more detail, you are welcome to reach out to me. The moment we start talking everything is confidential. It would be great to connect.
Till next time
Hendrik
Well said. Inspiring article .