Financial Independence in 3 Steps for Baby Boomers

We all want financial independence, but we stumble around trying to figure out how to get it. I think I have the way. It’s pretty simple actually. Now, what I am going to tell you is not totally original. I found the concepts in a brilliant article on achieving financial independence by Joshua Kennon, Guide to Investing for Beginners at About.com. The article is titled “The 8 secrets to achieving financial independence.” What I’ve done is take the 8 secrets and compress them into 3 steps.

Today I’ll give you the first step, tomorrow the second, and the following day the 3rd.
Before I begin, remember, Baby Boomers:

It is never too late to get on the track to financial independence. Just because you are over 50 or 60 doesn’t mean you can’t start now. It’s only too late when they are throwing dirt on your coffin. The phrase, “Better late than never,” is true in financial terms, as well as parties. Maybe you want to retire and do nothing, or you want to find a nice little business to run, or you want to travel. Even if you don’t have a long time to get there, you can still achieve your financial goals, one step at a time.

Step One: DSATM
That’s “Don’t Spend All the Money.” I heard this from a wise colleague who used to tell our students this phrase. He drummed it into them over and over, hoping they would not forget it. I don’t know if they remembered it, but I sure did. The first step to financial independence is this simple. You will need money to do what you want, and the only place you can get it, at first, unless you have a “secret Santa,” is to earn it.

The Big Mac Mentality of Baby Boomers. We baby boomers grew up with what I call a “Big Mac mentality.” We want it NOW and we want it big. We have no concept of delayed gratification. We are impatient for waiting for things we want. But that has changed over the past few months.

A Sea Change in Financial Thinking. Now that we all have been humbled (and made poorer) by the stock market crash, we have undergone what’s been called a “sea change” in our financial thinking. My husband and I thought our investments were growing well, and that we had plenty to live on during retirement. But we are now cutting back. We eat out less often, buy fewer books from Amazon, and we don’t feel we must have those little luxuries that we thought were necessities.

The BIGGER PAY-BIGGER PLAY phenomenon. Here is a great example of the difficulty of DSATM: We all know the experience of getting a raise. We think, “Wow, this is cool. I’ll take the extra money and put it aside. I won’t spend it; I’ll save it. After all, I lived on what I made before, so I don’t really need the extra.” How long did it take before you “forgot” to save that money and you were spending it on stuff you were sure you absolutely needed?

Income Must Exceed Outgo. DSTAM means that your monthly income exceeds your monthly outgo. In order to fund your financial independence, you must practice that delayed gratification, tighten your belt, and save some money each month. I know, it’s difficult, particularly if you are retired. But there’s no way to get to where you want to go (Tahiti? Italy?) without this first important concept.

Tomorrow, Financial Independence – Step 2.