How would you love to celebrate your financial freedom when you have finally achieved it? Well, we all dream of cherishing this privilege, but few achieve it. So, your efforts to maintain financial discipline and cultivate healthy saving habits have paid off. What’s next?
Of course, you would love to consolidate your wealth as you plan to live a lavish lifestyle. On attaining financial independence, you might be willing to realize your long-term dreams. Maybe you’d put in fewer hours to work each day or travel the world with your family. The concept that more expenses would bring in more fulfillment holds good up to a certain limit. It’s wise not to get carried away and squander your long-accumulated wealth.
What is Freedom of Money?
The meaning of financial freedom is not simply about being rich. Gaining financial freedom puts you in a position where you can control your money. Financially independent individuals cherish the privilege of having enough money to meet their expenses. This way, they can channel their time into activities that appeal to them rather than spending the time to earn their living. Financial freedom comes through years of planning and maintaining healthy savings habits.The underlying meaning of attaining financial freedom indicates that you need to be debt-free, well-invested with your funds, and financially secure for the rest of your life. The United States is currently placed in the 14th position in terms of financial freedom.
While financial independence prompts most people to live a lavish life, enjoy frequent vacations, explore fresh cuisines, and spend time outdoors, it’s imperative to capitalize on your funds. With high inflation and increasing cost of living, improper planning after attaining financial freedom can even deprive you of the desired living standard.
Remember that achieving financial freedom doesn’t necessarily mean being rich. What’s the point of having financial independence if your expenses are not in line? You would be losing your accumulated funds if you live an extravagant lifestyle without having fixed-income investments. Being financially independent means having adequate funds to fulfill the needs of your life and make smart investments.
Where to Invest Your Long-Accumulated Wealth?
Looking beyond your financial independence, it’s time to strategize your investments wisely. Interestingly, most Americans attain their freedom of money in their late fifties. So, you’re pretty close to retirement by the time your funds come easy-flowing.Real Estate Investment Trusts
Investing in REITs brings you the advantages of making real estate investments. From time to time, you would also receive dividends since it is a publicly traded instrument. With the real estate market in the United States looking in good shape, investors have the potential to earn competitive returns from the market. Besides, investing in REITs helps you hedge against inflation. Compared to real estate investments, REITs bring you a greater level of liquidity.
Traditionally, REITs have earned 10–15 percent more than the average S&P 500 returns over the last 50 years. Annually, shareholders receive as much as 90 percent of the taxable income of REITs through dividends.
Government Bonds
With an average annual yield of 3.5–5 percent, government bonds in the United States are safe and are regarded as fixed-income security. While you have been investing in equities to achieve an aggressive investment portfolio, why not balance this risk factor with these safe government bonds? The returns or interest rates of government bonds are not too attractive. Nevertheless, these investments go a long way to anchor your retirement savings and mitigate risk from other investments.
Corporate Bonds
Corporate bonds aren’t backed by the trust of the government and tend to be riskier. However, the right choice of corporate bond can fetch you much better yields. Historically, AAA-rated corporate bonds can fetch you anything between 4.5–5 percent annual returns.
So, it’s wise to balance your investment portfolio in bonds, picking mostly government bonds along with a few corporate ones. This way, you can maintain an aggressive growth profile of your retirement portfolio.
Dividend-Yielding Stocks
Evidently, investors can bank on these two-pronged benefits: getting regular dividends and benefiting from the appreciation of capital value. Considering the long-term returns, the growth appreciation looks impressive. It makes sense to invest in stocks of profitable and stable companies with strong fundamentals.
However, investors should note that brokerage accounts used in generating dividend income are taxable. Each year you receive a dividend, you need to shell out tax. On the other hand, investing in stocks that do not generate dividends doesn’t require you to fork out this tax. The tax is levied only when you sell off the stock.
Fixed Annuities
Fixed annuities are insurance contracts that pay a guaranteed interest rate to the account holder based on their respective contributions. As you move closer to retirement, it’s wise to go for fixed annuities as they warrant a specific cash inflow, with annual returns being anything between 3.6–5.5 percent.
If you have achieved your freedom of money in your thirties or forties, you can even use fixed annuities for your mid-term financial planning.
So, you need not worry about share prices, stock values, or the economic downturns that the country goes through. With fears of recession and inflation haunting most investors, it’s wise to rebalance your portfolio with fixed annuities.
The life of an annuity involves two stages. In the first phase, or accumulation phase, you keep investing. In the second phase, or the payout phase, you keep receiving the promised returns. So, begin with a series of cash outflows into the annuity and wait for it to grow the interest. This interest is tax-deferred and helps in growing the value of your account.
Treasury Inflation-Protected Securities (Tips)
The maturity tenure for investments in TIPS is five, 10, and 30 years. In most investments, you would get a fixed or variable investment amount that accumulates over the principal. Although the rate of interest is fixed, the principal value may fluctuate.
Endnote
Juggling your finances across different investment avenues would consolidate your wealth and balance your portfolio. It’s easy to lose your way amidst real estate investments, stocks, bonds, mutual funds, CDs, TIPS, and fixed annuities. Again, it’s your financial literacy that can bail you out of this dilemma!FAQ
What Is the Goal of Financial Freedom?
The goal of financial freedom is to give you the liberty to control how much and where you spend. At the outset, you eliminate debt as you walk on the road to financial freedom. Next, you attain the privilege of spending quality time on things you love rather than earning money all your life.What Type of Life Can You Lead After Attaining Financial Freedom?
After attaining financial freedom, you need not stress yourself with thoughts on how to earn money. Rather, you need to think about how to use your money correctly. Individuals attaining financial freedom need to make serious money-related decisions and make calculated investments to use their wealth to the maximum.How to Grow Your Life Financially?
Financially resilient individuals habitually set their financial goals and live on a budget. Focus on clearing your debts and automating your savings. Also, start investing as early as possible and maintain a healthy credit score. Lastly, but most importantly, educate yourself financially to grow your wealth.Should I Stop Working After Gaining Financial Freedom?
Whether you should quit your job or profession after achieving financial freedom largely depends on your priorities. Besides, this depends on the type of lifestyle you desire to lead. Do you want to travel the world or spend most of your time outdoors? Or simply allocate your assets into different investment channels and earn a fixed income every month?If you gain your financial freedom close to your retirement, you might decide not to work anymore. However, individuals reaching this benchmark early in their careers may continue to work and further consolidate their wealth.