The Stages of Financial Independence

George Schmidley, Founder and President of Affiliated Financial Advisors, answers our questions and details the approach to getting started towards financial independence. We followed up with questions about the stages of financial independence and asked if this were a goal or a process.

According to George, the stages of financial independence are Financial Solvency & Stability, Freedom from Debt and Enhanced Accumulation, Financial Independence, and Financial Abundance.

Sterling Lawyers:
George, Is financial independence (for clients) a goal or a process?

George Schmidley:
Great question. Financial independence is both a goal and a process, and I would also add, a positive outcome.

It starts with developing a stated plan, the “goals” and objectives portion, as a failure to plan is really a plan to fail. The “process” includes implementation; such things as which investment vehicles are best (employer retirement plans, IRAs, Roths, education funds, after-tax savings, etc.). This “process” also includes monitoring and adjusting actions to ensure the third experience, a “positive outcome” or success in meeting or exceeding expectations.

SL:
What does financial independence mean (for a client)?

George Schmidley:
In looking at the full experience (implementation, process, & successful outcome), it means having confidence and peace of mind in a fundamentally sound plan where successful outcomes are highly likely. It is not delegated to a professional advisor, but a partnership with one. Both the client and advisor have important contributions to ensure success. Openness and action from a client are required while entering an education-based process facilitated by the advisor. Mutual trust is a key component throughout.

SL:
How important is money management to financial independence?

George Schmidley:
The financial planning component and investment management are actually two separate processes that fit together. Investment management fits into the planning process, working with the assets derived from good planning. It includes risk assessment (i.e. stocks for growth), timeline (necessary for higher returns and compounding), discipline (not getting off the train in down cycles) and commitment (not to procrastinate or stop saving).

SL:
What are the Stages of Financial Independence?

George Schmidley:
Financial Solvency & Stability – This starts with the creation of discretionary dollars through the 90/10 rule, in living on 90% of earnings & saving 10% (or 85%/15%). Also, proper debt management and the development of reserved savings for the unexpected are essential for staying on track.

Freedom from Debt / Enhanced Accumulation – While some net worth has already been created in stage 1, savings and compounding increases as debt outflows are eliminated and hopefully, earned income rises.

Financial Independence – basic planning needs met, final goals on pace and within sight

Financial Abundance – all planning goals accomplished, excess assets, freedom & opportunity.

SL:
What is or detail further, the first step(s) toward financial independence?

George Schmidley:
The first step to Financial Independence is reflected in the first stage of item 4, “Financial Solvency & Stability”. For some, the first step is the hardest. It requires commitment, budgeting and deferred gratification that creates discretionary dollars to invest. Often, these habits have never been taught or practiced on a smaller scale when growing up. Lack of modeling and experience makes this essential first step the hardest for many.

SL:
Where can one find proper financial and investment education?

George Schmidley:
For basic planning concepts, I would recommend “The CoffeeHouse Investor”, by Bill Schultheis.
For fundamentals on investing, Bogleheads Guide To Investing, by John C Bogle, is excellent.

For a professional consultation, my contact information is below:

Affiliated Financial Advisors, Inc.
George M Schmidley, Financial Advisor/Principal
2600 N Mayfair Rd, ste 200
Milwaukee, WI 53226
(414) 476-4999 (O)
Email: [email protected]
Website: AffiliatedFA.com

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