Make Financial Freedom A Strategic Goal

By Charles Fournier

In 1987, I realized nobody else would have the level of interest in our financial well-being that I have. So I decided to manage our financial affairs myself and have been doing so ever since.

Shortly after graduating, my wife and I set Financial Freedom as our primary goal.

We decided to accumulate investments that would generate an income stream and would allow us to maintain our standard of living once we retired.

To help us achieve this goal, we chose to create a well-diversified portfolio of blue chip, dividend-paying companies with a track record of steady dividend increases. Along the way, we added real estate investment properties to reduce our risk.

After many years of diligently saving and investing, we have achieved financial freedom! I retired from a long career in Canadian banking in 2016. (My wife retired from her career in 2015).

This article explains the steps we followed to achieve financial freedom.

1. Define Financial Freedom

Millions of people are locked out of the American Dream. While the inability to save is partly due to irregular work or jobs that don't provide a reliable income stream, many people don't seem to set long-term goals.

One long-term goal worth pursuing is financial freedom. But to achieve this goal, you have to put your mind to it and make some changes in your life. Some changes would be minor, but others would have to be radical.

What does financial freedom mean to you? Does it mean:

• ... your basic needs are met?
• ... you no longer have debt?
• ... you only need to work if you want to?
• ... you can cross off items on your "bucket list" without running out of money?

Years ago, my wife and I defined financial freedom as having sufficient financial resources to pursue our dreams without sacrificing our standard of living. We wanted the ability to cross off items on our "bucket list" without running out of money. 

2. Determine Your Current Financial Position

In my opinion, goal-setting should come after you understand your current financial position. There is no point in setting goals if you have an unclear picture of your current situation.

Start by creating a net worth statement. List everything you own (assets) on one side of the ledger and list everything you owe (liabilities) on the other side.

Here are some tips:

• List all assets in order of liquidity and segregate the current assets from the fixed assets.
• List your liabilities in order of due date. Credit card debt would be classified as a short-term liability while the amount owing on a car loan, for example, would be split into a current portion (the amount due within 12 months) and a long-term portion (the balance due after 12 months).
• If you own real estate, determine the fair market value. In some cases, this can be achieved by speaking with local real estate agents who can tell you the recent selling prices of comparable homes in your neighborhood. In our case, I deduct 5% real estate commission and estimated legal expenses when I record property values on our net worth statement. I do this because I know the selling price is certainly not what we would receive if we were to sell the property.
• I exclude depreciable assets such as vehicles when listing assets. If you have a vintage automobile or motorcycle collection that is truly valuable, however, you may want to include these. Be conservative when assigning a value to such assets as they can fluctuate wildly depending on economic conditions.
• Don't list leased assets, since you do not own them. We have never leased anything, but if you do, I would suggest that you list the amount you owe as a liability on the net worth statement. I know this is counter to GAAP (Generally Accepted Accounting Principles), but I would rather err on the side of caution.
• We exclude household effects such as furniture and appliances. I suggest you do the same unless you have valuable antiques that recently have been appraised and could easily be sold for the appraised value on short notice.

In addition to knowing what you own and what you owe, you must have a clear picture of your income and expenses.

I use one of the following two cash flow statements: one is for Canadian residents and the other is for US residents. These spreadsheets are not protected and can be modified to suit your personal needs. Just be sure to download a copy to your computer.

There are 3 worksheets in each file.

Record your actual historical expenses on the Historical Spend Analysis worksheet. This can be a time-consuming exercise if done properly but I strongly suggest you devote the appropriate amount of time to this task. You need a reasonably accurate picture of your personal situation if you want the remainder of the planning process to be worthwhile.

In our case, I gathered all credit card, bank, and investment statements for the most recent 6 months to do the historical spend analysis.

If you tend to make purchases using cash, it may be difficult to determine how much money you've spent over the past 6 months. In this case, take a step back and start to track/record your expenses for several months.

We very rarely use cash. Except for a few pre-authorized payments processed through our bank accounts, such as property taxes and utility payments, we pay the vast majority of our expenses by credit card. As a result, it was very easy to import into Excel the transactions from our online banking platform for the purpose of tracking and analyzing our spending patterns.

For expenses payable less frequently than monthly, such as life insurance premiums paid annually, I opted to allocate one-twelfth of the annual premium to each month. If you prefer, you can reflect these expenses in the months they are payable. Just be sure to include them and to take them into consideration in your budget planning process!

After completing the Historical Spend Analysis worksheet, I identified expenses that could be eliminated or trimmed and populated the Projected Monthly Spend worksheet.

With each passing month, I made it a point to immediately record our actual monthly spend in the Actual Monthly Spend and Variance worksheet soon after month's end. By reviewing the variance between our projected monthly spend and our actual spend we were able to quickly identify areas of success and opportunities for improvement.

3. Set Goals

We opted to set our goals only after completing steps 1 and 2, as knowing our financial position helped us to set realistic stretch goals.

I suggest that you write down why your goals motivate you and why they are important to you. Review your goals regularly. Unless you do this, you may start doubting yourself or your ability to achieve your goals.

I can’t stress enough that your goals need to truly motivate you! If you have little interest in the outcome, chances are slim that you will put in the required work to achieve your goals.

Goals must relate to the highest priorities in your life. Creating a lengthy list of goals will leave you little time to devote to each one. Be committed to your goals and have a sense of urgency so as to avoid continually putting them off. If you continually put off your goals, I can assure you that you will become frustrated and lose motivation.

I strongly encourage you to set measurable stretch goals for different time frames. Set goals for the following time frames so you do not set yourself up for failure!

• less than 1 year
• 1 – 5 years
• 5 – 10 years
• 10 – 15 years
• 15 – 20 years

If, for example, financial freedom is your primary goal and you are mired in credit card and consumer debt, it is highly unlikely that you will achieve financial freedom in the short term. You'd be better off setting a short-term goal to fully repay you credit card and consumer debt and make financial freedom a long-term goal.

4. Create a Plan

Failing to plan is planning to fail.

If applicable, include your significant other in your planning sessions. Both of you must be in sync when setting goals, time frames, and the path to be taken to achieve your goals.

If financial freedom is your ultimate goal, I can assure you that you will need to make sacrifices along the way. For example, if you routinely buy a new vehicle every three years, one of your sacrifices could be to extend your vehicle ownership to 10+ years before replacing it.

5. Put Your Plan into Action

A plan without action is merely a dream and is not worth the paper it is written on.

Put your plan into action and closely monitor your progress. If the numbers reveal that you're not on track to meet your goals, it is imperative that you determine the root cause. If your life circumstances have changed, such as a change in marital status, an addition to the family, retirement, or a job loss, your goals and plan of action will need to be revisited and revised.

If you are working with a financial planner, have them periodically review your situation and provide recommendations.

6. Never Stop Learning

The role models in your formative years may not have shown you what it would take to become financially free. If this is the case, you'll need to learn from others how to proceed. With the wealth of information available on the internet, it is possible to learn from many people who have achieved the goals you're striving to achieve. Search for websites and blogs about Financial Freedom and read about the people who have achieved financial freedom. Learn from their approaches and see if you can adopt or adapt some of their ideas for your own journey.

7. Do Not Sacrifice the Present for the Future

Make the most of your time on this planet. Planning for the future is important but do not lose sight of the need to maintain balance in your life. Lead a well-balanced lifestyle and you will have a far greater ability to focus your attention and energy on achieving your goals.

Here are some tips:

• Pay attention to your health – exercise and eat properly.
• Expand your awareness – try something new you have always wanted to learn.
• Focus on enhancing relationships – turn off the television and devote more quality time with family and friends.
• Minimize toxins – this includes avoiding negative people.
• Explore the world – you don’t need to travel to the other side of the world. Walk and pay attention to what is around you.
• Find a quiet time to be alone – it is a terrible feeling to be overworked and overwhelmed. Try meditating, writing, yoga, or simply sit quietly for several minutes every day so as to lower your stress levels, increase happiness and encourage creativity.
• Disconnect from the world – stay away from the phone, computer, and television for a day or for a few hours every night. Give your brain a rest.
• Reward yourself – enjoy the simple pleasures in life but keep in mind that the reward does not need to be expensive.
• Have fun – find your sense of humor. You will feel a whole lot better!

Final Thoughts

From personal experience, I can assure you that financial freedom is truly wonderful!

Even vacations are more pleasant in that you do not spend the first few days and last few days of your vacation thinking about work.

If you take anything away from this article, it is this: if my wife and I were able to achieve financial freedom by our 50's, then so can you!

I wish you much success and would sincerely like to hear from you.

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This article was written by Charles Fournier of Financial Freedom is a Journey.  He holds BA (Economics) and BCom degrees, as well as an MBA.  Charles and his wife achieved financial freedom several years ago and Charles retired from a 36-year career in Canadian banking in May 2016. They enjoy crossing off items on their bucket list.  Charles remains passionate about investing and firmly believes that many people can achieve financial freedom if they make it a key goal and apply themselves to achieving it. He now enjoys educating people about investing.