The Road to Financial Freedom

Many of my clients and prospective clients cite financial freedom as their primary objective.  This is a broad term that can mean different things to different people:

Eradicate debt. 

Build an emergency fund. 

Grow retirement savings. 

Start a business. 

Work in a meaningful role, regardless of pay. 

Travel around the world.

So what does it take to build long-term wealth?  Dr. Thomas J. Stanley spent years researching this question and wrote The Millionaire Next Door and The Millionaire Mind to report his findings.  His daughter Sarah took things one step further, creating an online assessment thru her company DataPoints.  This assessment “links real life experiences and behaviors to your ability to build wealth.”  It is fascinating, and I’m proud to be one of DataPoints’ early supporters.

In fact, all prospective clients of WorthyNest take the full-length Building Wealth assessment so I can quickly understand their financial successes and challenges. Click here if you want to take a “mini” version of this wealth potential test. 

The findings are remarkable.  The full-length assessment investigates six critical factors that impact your ability to build long-term wealth.  I don’t want to give away too much of DataPoints’ methodology but will say that frugality is an important factor.  If you’re able to consistently live below your means, you are already on the right track. 

For married couples, I ask that each spouse complete the assessment separately.  This helps me, as the advisor, identify each person’s individual strengths and weaknesses when it comes to money.  It also allows me to assess potential areas of friction between spouses.  Money disagreements (i.e. hiding money or arguing about large purchases) are the #2 cause of divorce nationally.  I’d rather not see clients divorce over finances, so I try to tackle these issues directly with married clients.

Here are some interesting observations about the Building Wealth questionnaire:

1.     Your test results are compared to a large sample size who have taken the assessment. 

In other words, the results are relative, not absolute.  The detailed report provides a personal narrative and tailored recommendations to improve or maintain your score.

2.     Scoring high in every category isn’t necessarily good. 

If you exercise extreme confidence on investment selections and financial decisions, you could be overconfident.  An unbiased financial advisor with expertise and training in these areas will be a great sounding board or additional layer of oversight.

3.     There are no hopeless causes. 

If you score low in one or more categories, we can create an individual performance plan to get you on a better path.

OK.  All of what I’ve said is good in theory, but I’d like to connect theory to practical, actionable advice. 

Let’s suppose you aren’t very frugal.  What are some concrete steps you can take to improve in this area? 

1.     Get a budget. 

Whether it’s an app like Every Dollar or YNAB (or a good ol’ fashioned Excel file), everyone can benefit from a budget.  Read my related post Don’t be a Budget Hater.  Many of my September and October 2016 blog posts cover the gamut: from simple, envelope budgets to detailed, 50-line-item spreadsheets.

2.     Monitor that budget. 

Resolutions often fail because we don’t revisit them.  The same holds true for budgets.  You can’t have a “set it and forget it” mentality if you want to make any progress towards financial goals.  Rather, set a recurring appointment to revisit your situation and make required adjustments.  

3.     Focus on what really matters. 

Does a specific expense improve your physical or mental health (or both)?  One of my clients recently confided that she has a personal trainer.  Regular meetings with her trainer enhance her overall wellbeing, resulting in fewer medical emergencies and doctor office visits.  When she is looking to make budget cuts, I’m going to advise that she continue with the personal trainer (perhaps scaling back the frequency) and look for other areas to cut.  I’d also ask her to revisit the cost of dining out; home-cooked meals are generally healthier and less expensive.

4.     Consider a mindset shift. 

Rather than viewing frugal decisions as constraints, focus on long-term progress towards financial freedom.  Positive thoughts beget remarkable results.

 

If you or your spouse struggle with frugality, I hope this article gets you on a better path.  And remember, you don’t have to do this alone. 

Ready to uncover your wealth potential?  Take the short quiz here

Forever faithful,

Deb Meyer, CPA, CFP®