I’ve named this podcast Financial Autonomy.
So what is Financial Autonomy?
What does it mean?
Well that’s what we’re going to explore in today’s podcast
I’ll give you a big hint – Financial Autonomy is about gaining choices in life.
Buckle up – let’s dive in!
Financial autonomy or financial independence if you prefer, is about being in a financial position to have CHOICE.
In my role as a financial planner, every day I talk to people about their financial plans. In almost all cases, amongst their financial goals will be retirement plans. For the past 50+ years, most people in developed countries such as Australia have lived on an expectation that they will enter the work force in their late teens or early 20’s, and work through until somewhere in their 60’s, whereupon they will cease work entirely and live out their remaining days in “retirement”.
This scenario is perhaps a bit male centric, as for many women, paid employment is often put on pause when children arrive. But none the less, in more recent times this is a rough sketch increasingly applicable to both the sexes.
Whilst this trajectory remains applicable for many people, increasingly the feedback that I’m getting is that this is not how many people wish for their life to unfold. Instead they seek a path perhaps looking more like this:
Financial autonomy, is about getting yourself in a position where you can move to yellow section above.
Where you have CHOICES.
Where you don’t have to work in a job you hate, or with a boss who is a moron, simply because that’s your lot in life until you reach 65.
Financial autonomy might mean reducing your normal paid employment from 5 days per week to 3 or 4. And in those now freed up days, you might chose to study, do a different job, care for your kids or grandkids, or get involved in the local community.
Financial autonomy might mean a career change. Initially the pay might be less, maybe even permanently so. But you spend a lot of your life at work. Do you really want to waste so much of the limited time you have on this earth in a job you hate?
Financial autonomy might mean starting your own business. There will be many challenges and certainly risks. But you will have the flexibility to work when and how hard it suits you. Do something you are passionate about. Take holidays when it suits you. And if your son or daughter is getting presented with a student of the week certificate at assembly, you can go without having to ask the boss for a favour.
Whilst financial independence in the extreme might mean not having to work again, for most people this is not what they want. Financial independence is about having choices in life.
So where to start?
First you need to clearly identify your goal or objective, and then you need to quantify it.
Vague “one day I’d like to …” won’t get you anywhere.
Let’s say that your goal is for a career change. You currently work as a company accountant but have lost the passion for this profession and are finding the stress too great. You would really like to re-train to become a primary school teacher, something you feel you were born to do. So what are the financial challenges associated with this change?
- To retrain you would need to take 2 years out of the paid workforce to attend uni and complete the on-the job training required.
- The pay for a teacher will be lower than you are currently on – approximately $30,000 per year less initially you estimate, though this will narrow a bit as you gain experience.
You and your husband own a house with a mortgage of $300,000. Your husband works full time, enjoys his job, and believes it is quite secure. As a household therefore you have confidence that during your training period, some money will be coming in from your husbands earnings.
But what if any, is the shortfall? , ie. what is the difference between your husband’s take home pay and what it costs to keep your household afloat?
You need to know what you are spending.
We have a budgeting tool in the Resources page of our web site. I know household budgeting is no fun, but there is just no way you can gain choices in life through financial autonomy without knowing how much it costs you to live.
So let’s say mortgage repayments are $2,100 per month, and from the budget tool you have determined that your living expenses average $2,600 per month, and bills average another $1,200 per month. So your household expenditure is $5,900 or $70,800 per year.
You should allow some money for the unexpecteds, so let’s assume $75,000 is the current need.
Note that we have not allowed for lavish holiday’s here, or a new car. This is just what the household needs to function.
Your husband’s bring home income is $53,000. This is after tax and lease payments on a car. This is net income.
So you have a shortfall of $22,000. To achieve your goal, this shortfall needs to be plugged, both during the initial 2 year training period, and then longer term. In our next post we’ll look at some potential strategies you might be able to deploy to plug this gap.
Congratulations. You have taken the first definitive step towards achieving financial independence and being able to choose the life you want to lead.
So let’s summarise. To begin your journey towards financial autonomy and gaining choices in your life, you need to:
1 – determine your goal or objective
2 – quantify – how much money do you need to make this a reality?
Interested in achieving Financial Independence? Our Invest in Shares with Confidence online course could provide the tools and framework to enable you to succeed. Learn more here.