Tomorrow this country marks its 53rd anniversary of independence. Photos and video from the night of August 30, 1962 show upturned faces, filled with hope and limitless possibility, as the Union Jack was lowered and the red, white and black of T&T was hoisted for the first time.
Whether that hope has been translated into concrete reality in 2015 T&T depends on perspective. Very much like the concept of financial independence.
GDP per capita is higher now than it was in 1962, ($631.00 compared to $18,372 in 2013) so in one sense, we are wealthier as a people and certainly, many hope they can achieve financial independence. But does it mean as individuals in this country that we are drawing closer to that point where we can actually be free of worry about financial matters? Are there those of us who can make that claim? How did they get there? And in uncertain times of fluctuating energy prices, how does one maintain one's financial position?
This week, the Sunday BG discusses what it means to be financially independent and if that goal can realistically be achieved in this country today.
What does it mean to befinancially independent?
"There is no simple answer to that because financial independence generally means different things to different people," said Winston Williams, Pan American agency head.
Clifford Manchoon, financial advisor attached to the Maritime Financial Group said, "My financial independence may be different to someone else's because they might be willing to settle for a lower standard of living."
Williams expanded on this point. "If your basic needs as pertains to food, clothing and shelter and fixed expenses are met, then you have a level of financial independence. However, aristocrats have their trust funds. The trust funds takes care of their expenses, which are very different to the average person. In their mind, once the trust fund doesn't go bust, they are also financially independent."
So if these two very different groups of people can be considered "financially independent," what are some of the baseline criteria for this enviable position?
"Most people would define it as never having to work another day in their life because they can take care of their expenses by other means," said Williams.
These "other means", usually involve creating passive streams of income, early in life, usually rental properties, the interest paid on bonds and the dividends generated by stocks. But it is not only being to handle current needs, said Williams. Being able to maintain this financial independence also depends on being able to accurately anticipate expenses in the years to come.
"The reality is how do I create sufficient income to take care of not just my current needs but all my future needs," said Williams. "That in itself is a moving target, because no one can predict with any level of certainty their future needs. How do you quantify whether you have enough to take care of that?"
The Pan American head said this is why financial independence is more of a journey than a destination.
In explaining what financial independence means, Manchoon added: "You have sufficient money to put plans in place to deal with your retirement. Your debt servicing ratio should allow you to able to access a loan with ease, without having to do anything additional. You should also have your risk under control, by purchasing insurance."
The financial advisors' advice suggest, therefore, that in order to be "financially independent", you must not only be able to support your current and future needs through passive income, but you should also be able to protect that income and lifestyle if something unplanned occurs.
"Think about people who worked in places like Enron and World.com," said Williams, "They were people who had tremendous wealth, based on their employee stock ownership plans. They felt that they would have achieved financial independence by age 50 and wouldn't have to work up to 60. The price of those stocks were just going, going up. And then the collapse came."
Overnight, employees of Enron and World.com lost their financial independence.
Based on this example, Williams said, one's efforts at attaining financial independence should not just rest on employee stock ownership, no matter how well the company is doing.
Getting to financial independence
With falling energy prices, the prognosis for attaining financial independence may look grim, but both financial advisors say it is entirely possible to do this.
Manchoon said his work with clients showed that almost anyone who is prepared to stick to a well-conceived financial plan can attain financial independence, even if they were not born wealthy or are in debt.
Meanwhile Williams said working toward financial independence comes at a price.
"Most of the people I know who were able to do this made the sacrifices early, gaining passive income-producing assets, allowing them to grow, without utilising a lot of their money in their earlier years for consumption."
He spoke of one acquaintance who was able to achieve financial independence when he was 44 years old, just six months before his planned target age of 45 years. The friend now has a business that generates $150,000 per month in income, and allows him to be uninvolved in its day-to-day running. However, Williams said this was done at the price of his marriage and his social relationships.
"Ultimately, you have decide what you prepared to pay for financial independence," said Williams. "Is it financial independence at all costs? Is it financial independence but I want to keep my family?"
Income isnot wealth
Most people believe the key to wealth is a high-paying job. Yes, it's easier to amass assets if you have more money coming in each month, but the true secret to increasing your net worth is to spend less than you make. It is a cliche; but it is the fundamental, absolute, non-negotiable reality of money. To escape this trap, you need to understand that income is not wealth.
What is wealth? My personal definition: Wealth is the part of your net worth (assets minus liabilities) that generates capital gains, income, and dividends without your labour.
If you are a doctor or lawyer, you need to put in long hours after years of specialty training and higher education to get a paycheck. On the other hand, if you have a portfolio of private businesses, car washes, parking garages, stocks, bonds, mutual funds, real estate, patents, trademarks, and other cash generators, you could sit by the pool. The real value, of course, is that you could maintain your lifestyle even if you were disabled or unable to continue working at your primary occupation. Better yet, unlike a salaried employee, wealth can't fire you - you have to squander it. It's far easier to lose a job that wipe out a well-constructed portfolio.
The level of your wealth should be measured by the length of time you could maintain your standard of living without an additional paycheck. In other words, if you had to stop working right now, how long could you keep up your purchasing pattern for cars, clothing, music lessons, college tuition, video games, etc.? The average person isn't educated in this truth, which is why the more and more they earn, they are left wondering why financial independence and security continue to allude them, always seemingly just out of grasp. (Source: About money)