April 2000

3 Steps to
Financial Freedom

© Talbot Stevens

Achieving financial freedom is the dream of most Canadians. In today's turbulent and uncertain financial world, knowing that you are not dependent on your employer, the government, or the stock market results in a security and peace of mind that can be more valuable than riches itself.

So what does it take to translate this common dream into reality? The three steps to success in achieving financial freedom or any area are goal, plan, and action.

While this may be known to many and appear simplistic, when we are not successful at something, it is usually because one or more of these steps has been ignored.

The first and perhaps most critical step is to clearly define the goal that you are trying to achieve. It is very difficult for an individual or their advisor to hit the target if neither knows what the target is.

The goal must be measurable with a target date and well defined, identifying constraints like risk tolerance that must be satisfied along the way.

Because most financial plans must meet the needs of several individuals, there are often multiple goals. These must be prioritized, identifying which are most important and which are most urgent.

If, like most people, one of your goals is to never outlive your money, it is very important to be realistic about how much money is needed to last 30 to 40 years or more. Successfully hitting a target that is mistakenly set too low doesn't do much good when you're forced to polish up a resume 15 years into retirement.

Once the goal is clearly defined, the next step is to plan how to achieve it. Planning involves objectively evaluating all possible alternatives for achieving the goal. The plan must be written and doesn't need to be long or overly detailed.

Since most people have several goals, combination plans that effectively integrate various strategies like RRSPs, RESPs, conservative leverage, and debt pay down will become more common.

Unfortunately, the information explosion in the area of personal finance is a mixed blessing for the planning phase. While there is much more information available to help formulate a plan, there are often so many sources of ideas, including hundreds of experts' conflicting opinions, that it is easy to get overwhelmed, confused and not know which way to turn.

Ironically, the abundance of free information from the internet and other sources has only increased the need for good financial advice.

The final step to success is to act. Benefits are only realized personally when you start acting on the plan, and stick to it.

Although easier said than done, achieving financial freedom only requires acting on and sticking to a plan designed to achieve well-defined goals. Of course, delivering these valuable services is what professional financial advisors do everyday.

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