There are two strategies toward financial independence that enable anyone to execute with high level of success regardless of incomes.
The first strategy will require the determination to overcome two huddles – you and 50% of the population.
In the second strategy, the only impediment is you!
Before we assess the two strategies, let’s ponder over the idea of financial independence!
Give or take, the 10 thousand years old civilization has firmly erected money as the corner stone for progress and is the requirement for basic survival.
There are not many places on earth that support the essential basics of everyday living without the requirement of money.
Of the few places that do, they require the natural instincts, skills and hardiness – that have mostly eliminated from the population through continuous progress and the higher standard of living across the globe.
Denying money plays no role in happiness is a delusion. Happiness begins with the process of fulfilling the requirements of the basic essentials – biological hunger and thirst, biological mating and biological safety.
The first strategy toward financial independence if succeeded will meet the basic essentials and lay the foundation for the additional options going forward.
The macro-economic math for the strategy is simple and straight forward.
In the last 300 years, the economic model started in the West hemisphere is undoubtedly the de-facto standard to be replicated by all emerging economies.
Let’s pick out few components from the complex model to be used as the key constituents in the financial independence strategy that will apply anywhere around the world – tax, average inflation, average investment of return and the median income per capita.
Let’s begin with the median income per capita!
Whereas money is the corner stone for progress, competition for money is the fundamental behavior for the population.
Competitiveness and prowess as displayed by Warren Buffet, Bill Gates, Steve Jobs, Elon Musk and Jeff Bezos and examples of genetic potential meet the once in a lifetime opportunity revealed at a precise moment of time.
There are less than 1 percents of the population with the proper genetic switches at birth and the additional switches turned on by the external environment up to puberty that enable the capability to capitalize the ripened lifetime opportunity.
The rest of the populations are spread across the spectrum in competitiveness and capability in the acquisition of the needed resource – money.
The median income per-capita is the best metric to measure individual required competitiveness with the exception cases where physical and or mental disabilities prevent the participation in the competition.
The median income per-capita is the financial inflection point where below and over will induce stress in the everyday living for the majority of the population.
Let’s discuss tax and inflation!
Tax and inflation are expenses against the earned income. It is a price of admission for the participation in the structured economy.
These numbers are critical to the calculation of the financial independence game plan because they are fixed expenses for the average citizens – the majority citizens in a population do not have any influence on these numbers.
Lastly item is the average investment of return!
Living from hand to mouth without any fore-plan in the area of financial investing is impossible to ever reach financial independence mile marker.
Once the saving takes root and without leverage investing opportunities, inflation is the termite that will chip away the hard-earned money.
It is vital to investigate the opportunities that will bring the average investment returns. Again, this is another financial inflection point where above and below will induce stress in the everyday living for the majority of the population – high returns implied high risk and low returns meant it will take longer to achieve financial independence.
Let’s calculated the first strategy to financial independence using the economic statistics from the United States – the same calculation can be done anywhere around the world using the same technique.
The median income per-capita in the United States as of 2019 is approximately $40,000 per year.
The average return of the S&P 500 stocks from 1957 to 2018 is 8%.
The average long term U.S. annual inflation rate is 3%.
As of 2018, tax on $40,000 of income is $6230 (approximately 15.6%)
The sum of tax and median income per-capita is $46,230.
The difference between stocks return and inflation is 5% (8 – 3 = 5).
The targeted financial independence number is calculated by divide the sum of tax and median income per-capita by the percentage difference between stocks return and inflation – resulted $924,600 (46000 ÷ 0.05).
The majority of Financial Planners will round this figure to $1,000,000 as the guidance for their clients.
Once the financial independence figure is established, the calculated number will become the financial target as the key performance indicator to be incorporated into the financial planning, execution and feedback.
The financial plan can be designed for execution in the time frame of 10, 15, 20 or 35 years depending on the level of income and the degree of frugality in budgeting (read the Money Plays).
The first financial independence strategy is best to be executed by those whose incomes are higher than the median income of the population.
Humans are social creatures. Monkeys see monkeys do are the normal and expected behaviors. Having the income higher than fifty percents of the population, the strategy anticipated unavoidable behaviors.
It is a challenging effort for anyone to participate in a sound financial behavior when the stupidity ritual is visually observed in fifty percents of the population.
As mentioned in the beginning of the discussion, the strategy required the determination to overcome two huddles, competition for financial resource against 50% of the population and you who must be able to have control over your financial behavior.
The fact that 80% of the working force have less than $134,920 in savings implied the financial access over the median income was not successfully translated to comfortable retirement (Source: Federal Reserve, FDIC, MagnifyMoney estimates and CNBC).
The financial access over the median income was not successfully slated to savings that enable opportunities in the areas of entrepreneurship or and the certainty of retirement in just a matter of time.
Most of the access was wasted in the financial arena that is indifferent in the financial well-being for the individuals – especially the ones that do not have a well thought financial plan for execution in the competition.
Let’s move on to the second financial independence strategy!
Whereas the first strategy requires the median income in the calculation of the financial independence target, the second strategy does not – the only hurdle to overcome is you!
As pointed out earlier in the discussion, humans are social creatures. Socialization births the behavior monkeys see monkeys do. Socialization ensures the behavior takes root through process of repetitive conditioning – addiction is inevitable in just a matter of time.
The requirement in the second financial independence strategy is simple – monkeys see monkeys THINK.
Think gives time to evaluate the situation. Most herds’ behaviors will be apparently destructive if given enough time to evaluate. Very few are legitimate and have the level of criticality where time to evaluate is not an option.
For example, if you see a confusing crowd trebles in panic and is running opposite in the direction you are walking. It is a good idea to turn around and join the mass in the same heading.
Whereas, if you see the crowd over excited in happiness and is heading toward an unknown source, it is vital that stay uncommitted until you have taken time evaluated the situation and the source.
The second strategy requires the individual mindset – monkeys see monkeys THINK.
Within the individual mindset is a financial component that with proper practice and nurturing – will shield the person from many destructive financial behaviors that plagued the population.
Once you have established the individual mindset – the median income requirement in the first financial independence strategy is no longer required.
The calculated financial independence number is exactly the same way – substitute the median income requirement with your custom lifestyle budget that you have designed for yourself.
A successfully life is located at the mile marker after preparation meets opportunity.
Let’s play the game of life!
