3 Ways to Strive for Financial Freedom—Even During Uncertainty

Budgeting | Financial Planning | InspireHer: Plancorp Women’s Initiative

 Sara Gelsheimer By: Sara Gelsheimer

We live in uncertain times. The deluge of depressing news only reminds us of the many things that are out of our control.

Amidst so much uncertainty, it may seem strange to ask, “How can I achieve financial freedom?” We can’t even guess what’s going to happen in the next week, so how could we possibly predict 30 or 40 years from now when many of us will retire?

In reality, your financial future is as much within your grasp now as it always has been. The first step toward achieving financial freedom is accepting what you can control instead of worrying too much about what you can’t—although worry is perfectly normal during any time of uncertainty.

Consider the many factors that always seem to threaten your financial freedom. Taxes, the markets, interest rates—there are plenty, and you have very little control over most of them. It’s easy to spin your wheels worrying about these unknowns, but it doesn’t get you anywhere.

What you can control is your plan for the future, your habits, and the steps you will take to achieve financial freedom. These are the things that should hold your attention rather than the fluctuating circumstances of your life.

Recognize the Obstacles

The reality is, there are always obstacles in our way and excuses at the ready. There are many ways to achieve financial freedom, but they all start with recognizing and responding to the things that tempt us to throw in the towel.

There are plenty of things fighting to pull our attention away from long-term goals. The social media culture, for example, creates an insatiable hunger to keep up with everyone else, and this desire has pushed 40% of millennials into debt. Our smart devices make instant gratification seem reasonable all the time, so much so that 41% of respondents to a 2017 poll said technology made them more impatient than they were five years prior.

Often, though, the easiest excuse is simply the fact that retirement—a time when you need true financial freedom—seems so far away. It’s tempting to think that you’ll have a bit more to put away next year or that your home remodel is more urgent than saving. No matter the justification, these distractions are pulling you away from your financial freedom goals.

Ways to Achieve Financial Freedom

Ultimately, there will always be things you cannot control, but you can take specific steps to achieve financial freedom—regardless of your situation or what’s happening in the world—by taking control of your budget. Here are three ways to do just that:

1. Put your goals first.

The best path to financial freedom, as with any other dream, begins with concrete goals. What are your financial objectives five, 10, 20 and 30 years out? Where do you hope to send your kids to school? When do you want to retire? Get these goals on paper, writing out the approximate time in which you’d like to achieve them and how much they’re projected to cost.

As you start to plan for your goals, you’ll need to have a good handle on your budget. Instead of pinpointing where every dollar goes each month, I’ve found it’s easier to set up a reverse budget. For this kind of budget, you’ll need to determine how much you need to save for your goals and then set those savings on autopilot. Once your savings are set up, whatever money is left can be spent however you’d like—housing, food, going out, etc.

Once you’ve planned your goals and budget, you can build a saving and investing strategy around them. If your goal falls within the next three to five years, for example, consider setting aside those funds in something very liquid (e.g., a money market account). If your goal is five to 10 years away, however, you could consider a moderate investment allocation such as 50% in stocks and 50% in bonds. Finally, if your goal is 10 to 15 (or more) years away, you could potentially take more risk and invest 70% in stocks and 30% in bonds—or even 80% in stocks and 20% in bonds. Note that you’ll want to make more conservative investments as you get closer to your goal date.

Determining how much to save for long-term goals can be daunting and challenging, which is why it might be helpful to meet with a financial advisor. A financial advisor can help you decide how much of your assets to put into stocks and bonds in addition to developing guiding principles for how you invest. When you have a set strategy in place, it’s easier to stay the course and reach your goals—even during difficult times.

2. Have a safety net for emergencies.

The recent COVID crisis is a poignant reminder of the importance of an emergency fund. You can’t control what happens, but you can plan ahead and be ready for anything. The amount to set aside for emergencies will vary by individual but a good rule of thumb is to have at least three-to-six months of non-discretionary expenses on hand (or more, if your income is variable). This will allow you to weather a bout of unemployment or other unforeseen circumstances.

Emergency funds should be very liquid and safe, so keep them in a secure account like an online money market. An online money market account will earn a little more than if you kept the money in a savings account at a brick-and-mortar bank. The process of building an emergency fund will differ depending on your stage of life and current assets. When you’re just starting out, it may not be possible to have six months of expenses on hand. An excellent way to build your fund up is to designate a certain amount from your paycheck each month that goes into whatever separate account you choose.

By the time you retire, it’s best to have as much as 18 to 24 months of net expenses on hand. For example, say your expenses are $150,000 a year during retirement; if you get $30,000 from Social Security and $50,000 from a pension each year, you’d have $70,000 of net expenses. In this scenario, a target cash reserve of $105,000 to $140,000 during retirement would be a great buffer. This approach also helps prevent the need to sell stocks when the market takes a nosedive.

3. Allocate for your future.

Saving for retirement should always be a significant part of your financial freedom plan, so you need to account for it in your budget. Contributing to a company retirement plan—such as a 401(k) or 403(b)—an IRA, or a Roth IRA is a great place to start. It’s important to note that traditional 401(k) and IRA account contributions are tax-deductible. Since you get an upfront tax deduction, you must pay taxes on anything you withdraw during retirement. Conversely, Roth 401(k) and Roth IRA contributions are made with after-tax money and thus can be withdrawn tax-free during retirement.

For your retirement plan contributions, focus on low-cost ways to invest (such as index funds or ETFs) while maintaining a diversified portfolio to help you manage risk.

To do this, your portfolio should include both large and small U.S. companies as well as those outside the U.S. You might also add short-term, high-quality bond funds. These are a good buffer in portfolios and can help reduce risk. It’s much better—and will have a higher payoff—to take risks on the stock side.

And remember that you can start with baby steps. I worked with one client who was just starting out and feeling overwhelmed with the thought of investing. I helped her set up a small deduction from her bank account that was invested into a Roth IRA. While the amount was minimal, she realized she was able to live without that money and slowly increased it each year. Starting small, as my client did, and celebrating wins along the way gives you the boost to keep track of your spending and save for the future.

Start Planning Early

Don’t put off your finances until you feel like you finally make enough money to create a plan. If you start the habit of planning and budgeting when you’re young, you’ll be able to expand your savings rapidly as your income grows. And there are so many great resources that can help, like YNAB and Rocket Money

The question, “How can I achieve financial freedom?” is as relevant now as it ever has been. If you find yourself struggling to come up with an answer, shift your focus to what you can control. You might be surprised by how far you can get with your attention in the right place.

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Disclaimer: This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.

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Sara came to Plancorp in 2013 with a strong financial background and an even stronger commitment to financial education—particularly for women. A Wealth Manager and Founder of InspireHer (Plancorp's Women's Initiative), Sara is also a new mom. More »