What is financial independence?

Wikipedia defines it as “the status of having enough income to pay one’s living expenses for the rest of one's life without having to be employed or dependent on others.” In other words, people who achieve financial independence can afford to stop working or to slow down, if they’re so inclined, without affecting their lifestyle. While some just dream about it, others turn dream into reality by setting a savings goal.

Achieve financial independence with a savings goal
To achieve something as important as financial independence, you must save money. While some can do so relatively easily, others see it as a mountain too high. And then there are those who save blindly, without knowing how much they should be putting aside.

Why set a goal?
There are many reasons for saving. Whether it’s to achieve financial independence or for another reason, sound planning means setting a clear and specific goal, including a schedule and the amount you want to save.

Why?
- To maintain control and get results;
- To persevere and stay motivated;
- To be realistic and focus on what is achievable.

Set your savings goal
Setting a financial goal may seem simple – at least initially. What could be better than an example to remind us of how to go about it?

Determine your goal and schedule

Let’s say you plan to achieve financial independence in 15 years, which gives you 180 months to save the desired million dollars. It's a clear and specific goal.
A word of advice: for a long-term project, it may make sense to take inflation into account, which means increasing your projected savings.

Define how you’ll save

How much and how often will you save? To achieve your goal of financial independence, you can opt for monthly savings, which corresponds to $5,556 a month for 180 months (180 x $5,556 = $1,000,080) or $4,063 a month for an investment with a reasonable annual return of 4%.

An effective way to stay disciplined and lessen the impact of market volatility is to opt for automatic savings.
But is that realistic in terms of your budget? You may need to eliminate or reduce some expenses. It’s important to decide which ones.

Determine your investor profile

You know that you have 180 months to save a million dollars and that you have to reduce your expenses – some of them drastically! It’s clear that, by investing your savings, you could make it easier to achieve your goal. That said, all investments involve risk. So you have to ask yourself, if you were to lose even 5% of your investment, could you accept it? This is called your level of risk tolerance.

Regardless of your project, it’s important to assess the level of risk properly. Depending on market fluctuations, it may be difficult to recoup your losses by the deadline you set for yourself, and as a result your project may be delayed.

Choose your savings vehicle and investments

Once you’ve established your investor profile, you can choose an account type and investments that are appropriate for your needs. By investing your savings instead of letting them languish in a current account, you’re aiming to earn a superior return and reach your goal faster, or even exceed it!

Get professional help
Each situation is unique and several factors can slow or accelerate your progress toward financial independence. Given the importance of this type of project, calling on professionals for advice will give you a clearer view of your situation.

The mutual fund advisors and representatives working for Advisory Services at FÉRIQUE Investment Services can provide guidance.

FÉRIQUE Fund Management and FÉRIQUE Investment Services are not-for-profit organizations whose mission is to accelerate the financial independence of Quebec's engineering professionals.

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This review has been prepared for the general information of our clients and does not constitute an offer or solicitation to buy or sell any securities, products or services and should not be construed as specific investment advice. All opinions and estimates expressed in this document are as of the time of its publication and are subject to change. The information contained in this document has been obtained from sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. The content of this presentation is the exclusive property of Gestion FÉRIQUE and should not be further distributed without prior consent of Gestion FÉRIQUE.