I’m going to stick with last week’s theme on being financially independent because I got some nice feedback.
Before I get there, a quick word about the IRS for our friends in San Diego…
Per Kiplinger, as of June 25, the IRS had a backlog of 16.7 million 2019 and 2020 individual returns that require manual processing by agency employees.
Yikes.
And … “the IRS expects to complete the processing of 2019 Forms 1040 that were filed on paper sometime this summer.”
Oh, and hear this about the phone issues right now:
“During the 2021 filing season, [the] IRS received 85.1 million calls on its toll-free 1040 phone line. Compare this figure with 7.3 million and 12.1 million calls for the 2019 and 2020 filing seasons.”
And listen — the same thing is plaguing our “practitioners only” hotline … but it is WAY better than the situation for the general public in Southwest California.
All of these are reasons that (I hope) you are glad to have a pro in your corner. We aren’t the IRS, and we can’t tell you when refunds or returns will be processed — but you have an advocate that can pull more weight.
But enough about that … let’s get to the good stuff… tips to being financially independent.
Being Financially Independent: Planning for the Future Starts Now
“Efficiency is doing things right. Effectiveness is doing the right things.” -Peter Drucker
When you go through hard times, financially, it’s easy to believe that there’s no light at the end of the tunnel. And being financially independent can seem like that proverbial pipe dream we mentioned previously.
But did you know that most people of great wealth were previously bankrupt at some point? (Just Google it. You’ll see.)
In fact, it’s often the “fire” of these times of trouble which serves to clarify things — and get you into the place of making smart decisions, perhaps for the first time.
So, if you’re feeling the financial heat right now, look out for the blessings in the midst of pain. I know it’s hard — but chances are, you’re being reminded of what’s REALLY important … and often, seeing this again can be a launching pad for living the kind of life you really want to live.
How To Think About Growth
Money has no value unless you’ve got the time and good health to enjoy it. In fact, if you have to be poor, would you rather be poor now or at retirement? By planning carefully and investing wisely, you shouldn’t have to make this choice.
I believe you ought to save early and often, making regular, scheduled investments in the stock market through the use of mutual funds or an actively managed account.
Of course, nothing in life is ever guaranteed, but historically speaking, over the long term, the U.S. stock market yields an annualized return of about 7-8% (assuming dividends are reinvested). Yes, things are volatile right now … but “market risk” is not the greatest danger to your savings — inflation is the greatest danger. The value of your retirement erodes at a rate of roughly three or four percent every year (and perhaps even more right now).
But the stock market has always recovered from even the steepest declines.
Here’s a historical note for you: the worst one-year period for the Dow ran from July 1, 1931, to June 30, 1932. It lost 68.92% of its value. Would you have bought stock then? If your goals were long-term, that’s exactly what you should have done. The best 30-year period for the Dow ran from July 1, 1932, to June 30, 1962, during which time it offered an average annual return of 14.34%.
Here’s a Great Place To Start
Being financially independent isn’t always easy. It takes time and work. You cannot accomplish your goal of achieving it by wishing. It takes doing. It takes being committed and absolutely determined to act.
One way you can act now is to take a look at your personal expenses. Here are some tips to cut them…
* If you and your partner both work, try to live on only one income. Invest the other.
* Save an emergency fund but don’t make it too large. I like a small (one-month of expenses) emergency reserve with everything else invested in mutual funds. Eventually, you should work to build this up to 3-6 months, but initially, one month will do.
* Never borrow money, except to buy a home. If you use credit cards, use them only as a convenience, not to borrow. Of course, I recommend not using credit at all for everyday purchases. Debit cards will really cover any use for which you might want or need to use plastic.
* Pay yourself first. Every month, invest some portion of your income for your future. Again, I recommend setting this up to be happening for you on an automated basis.
Finding more money to actually invest is a key to being financially independent. And one great way to find extra money is to cut back on your existing expenses.
Yes, you can achieve this, but you can’t get there overnight, and you can’t get there without setting goals and making sacrifices.
So, start now.
I’m grateful for your trust, and for your referrals.
For a look at your plans, and how your personal financial decisions are impacting your freedom (and your taxes) … we’re right here: 858-549-9666
In your corner,
Darryl A. Hale, EA, MBA, MST