At some point in our working careers, we realize we may need to learn how to live on less than we earn so we can save for the time when we won’t work. That golden age, when work becomes an option, not a necessity, is called the age of financial independence. But there is no Moses to take us to the promised land filled with milk and honey. Like the Israelites, we have to walk there on our own two feet, and even then, the journey is filled with uncertainty. Here’s what I mean:
- We do not know how long we are going to last. Even if we do nothing to take care of ourselves, science is working on extending our lives until more of us are certain to outlive our money. And with a healthy diet and daily exercise, there is no telling how much longer we will outlive our money.
- We do not know what the price of a loaf of bread will be in the future. Inflation we saw in the 1970s can come roaring back and devalue the money we set aside.
- We do not know whether we will be healthy or sick in those future years, which will determine how much of our nest egg we will spend on acute and chronic health needs.
- Unless we have so much money we don’t care, we will need to invest money in the hope it will grow. And although we can look at how investments performed in past, this is no indication of how they will perform in the future.
- No matter how well we prepare, that doesn’t mean your national, state, or local government will do the same. Do we expect taxes to go up or down in the future?
The top financial goal for all of us is to achieve financial independence, having enough income we can never outlive. But to get there we’ve got to figure out how much money we will need to afford the life we want and then we must test our forecast with the many uncertainties that lie ahead. Even then, your financial future will depend to a degree on luck. The question is, how much of that future do you want to leave to chance or do you want to at least try to plan ahead?
Shall you drift along the river of life or will you try your hand at steering?