Here’s the Financial Independence blog just published at moneysense.ca. I’m posting this here for those who may have missed it, even though it reprises a similar guest blog I did for Roger Wohlner at his blog this weekend over at The Chicago Financial Planner. You can find a link to that one via the MoneySense post and indeed to the original blog that spawned both of them at My Financial Independence Journey blog.
However, unlike those other blogs, in this version I’m continuing the publishing of the end-of-chapter summaries that appear in the new US edition and e-book. Those who bought the original edition of the book won’t have those summaries, nor the glossary at the end.
Chapter 5: You can’t always get what you want
A paid-for home is the cornerstone of financial independence; paying down mortgages
•A paid-for home is the cornerstone of financial independence.
• Bad debt is consumer debt that charges high rates of interest and cannot be deducted from your income tax bill.
• A home mortgage is good debt, especially in America, where you can write off the interest charges from your taxes.
• The faster you pay off your mortgage, the less interest you’ll pay.
• Aim for a 10 or 15 year amortization period, not 30 or 35 years.
• Pay Yourself First by setting up an automatic draft to transfer 10 to 20% of your paycheck into investments.
• Leverage means borrowing money in order to invest. It can work but requires emotional fortitude to stick to the program when markets are down.
• Because you can write off some expenses, self employment is an often overlooked tax shelter.
• Real estate is a major part of a diversified financial plan but those who don’t want to be landlords can instead buy REITs, or Real Estate Investment Trusts.
Now here’s a deal! Anyone who wants a free e-book of the new US edition of Findependence Day — or three books by other authors — can do so at a “Digital Book Signing” next Thursday. Just click here to register, then join us Thursday, July 18th at 3:30 pm EST. I’ll be one of four authors featured. Everyone who signs in will be emailed a BookStub [see illustration] signed by me (or other authors), immediately following the event.
For those for whom the concept of a digital book signing may be novel — it was to me as well! — click here for a short introduction to the concept or this 2011 New York Times article, Would you sign my Kindle?
In the case of the US edition of Findependence Day, readers who have already bought the hard-copy Canadian edition can now get the e-book at no extra cost. The story is much the same as the original but it’s all set in the United States, the financial terms are all American, there’s a new glossary and it includes end-of-chapter summaries of the key financial concepts learned. Apart from the Kindle, you can get the book on the Nook, iPad and most other popular e-book formats, or indeed in a format readable on laptop or desktop computers.
Of course, you don’t need to have previously bought the book to take advantage of this short window: those who have happened on this web site and were curious can now satisfy their curiosity without spending one thin dime: Canadian or American! Guerrilla frugality at its finest — hoist by my own petard!
The other three authors and their featured books are:
L.D. Nascimento; The Curse of The Golden City and The Path to the Fallen Stars
Andrew Bernstein; California Slim
Daryl Edwards, The Guardian Corps and Book One—The Argent
Obviously, we all hope to create a bit of word-of-mouth for our respective books and ultimately to stimulate actual sales. In the case of Findependence Day I’d encourage anyone who does download the book and enjoys it to post a short review at Amazon.com, which is one of the main ways the book can be purchased (whether Kindle, paperback or hardcover). Here is a sample of half a dozen recent mini-reviews of the new edition at Amazon (click on Newest reviews first).
Recent Reviews of US edition of Findependence Day
Here is a link to several other recent reviews that appeared in and around the American Independence Day. This is a link to the Reviews tab elsewhere on this site: they appear four lines down and are grouped together to distinguish them from older reviews of the first edition.
Finally, below is the summary of key concepts covered in Chapter 4 (see earlier blog posts for the first three; others will be posted over the coming weeks):
Chapter 4: Baby You’re a Rich Man
The concept of Human Capital
• A “Frooger” is a Frugality Guerrilla.
• Froogers make frugality a lifetime habit: first to eliminate debt; later to build wealth.
• Part of being frugal entails tracking expenses and making a budget.
• If your employer has a pension plan, you’d be wise not to pass up the “free money.”
• Teachers and government workers like Sheena enjoy “Cadillac” Defined Benefit (DB) pension plans where you know exactly how much you’ll receive in retirement.
• Younger tech firms like Jamie’s employer are more likely to offer 401(k) retirement plans that go up or down with the stock and bond markets.
• Once you’re free of all consumer debt, employees should start an IRA or Individual Retirement Account. Uncle Sam gives you a generous tax break as an incentive – as long as you’re not also covered by an employer-sponsored retirement plan like a 401(k) or 403(b).
• You can save $5,500 a year in an IRA, or $6,500 if you’re over 50.
• You’re richer than you think means young people are rich in “human capital” – millions in future earning potential.
• To get diversified long-term growth in the stock market, consider exchange-traded funds (ETFs) or index mutual funds.
• ETFs and index funds are cheaper than most mutual funds because they track broad stock market indexes like the S&P500.
Now that Independence Day has come and gone, perhaps it’s time to start thinking about your Financial Independence Day, or my contraction for the same thing: Findependence Day.
Whether it arrives in the near future or many moons from now, we know that the day of leaving the workforce must some day arrive. The timing may or may not be under your control: health and employer willingness to retain your services also come into the picture. What IS under your control is the financial resources you can mobilize to maximize your freedom and flexibility once this event occurs. And this must be done while you’re still gainfully employed.
One difference in these terms is that while Independence Day comes around every year, Financial Independence Day is a more unique event. It’s not carved in stone, of course, and can be moved forward and backward depending on circumstances.
The illustration is from the cover of the new US edition of Findependence Day, complete with fireworks and balloons. The calendar depicted is from the future (2027), and July 4th is circled as the “Financial Independence Day” of one of the lead characters in the book – for this is a novel as well as a financial primer for young people just entering the workforce and embarking on family formation.
The point, as financial planner Sheryl Garrett remarked in a recent Marketwatch.com review of four books (including this one) is that the book’s title is about making a target: a point in the future you are working toward: “Findependence Day is the day you have choices and freedom. It’s redefining retirement and reaching financial independence.” Sheryl wrote the foreword to the book, which you can access via this free preview here at Amazon.com.
You can also read a blog on the book just published at NextAvenue.org, tied to the Independence Day theme — here — as well as a podcast on the book, where Al Emid interviews me for New Books in Investment: here.
And finally, on July 4th (yes, Independence Day) is this interview with Preet Banerjee on his “Mostly Money” audio podcast.
The power of visualization
Anyone familiar with goal-setting and visualization will know that, as I say in the book, there’s some power in setting an actual date in the future as a goal by which something is to be achieved. Jamie feels that on the day he turns 50, his income from all sources will exceed the income he could get from a sole employer and so he will become “findependent.”
I note that there are starting to emerge other books that also focus in on Financial Independence rather than Retirement, even though the term so beloved of the financial industry and the media is Retirement. In his recent non fiction book, Financial Independence: Getting to Point X, author and financial advisor John Vento describes Point X as the inflection point when financial independence is achieved. I”ve not yet read the book or talked to the author but it seems to me that Point X and Findependence Day are very similar concepts.
It’s worth reading Wikipedia’s entry on Financial Independence, which reads as follows.
… the state of having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income that is greater than their expenses.
I first became aware of that entry just a few weeks ago when I wrote a guest blog for fee-only planner Roger Wohlner, aka The Chicago Financial Planner. Since I’d finished the book by then it had no bearing on the book but the concept was not dramatically different.
Seek Findependence, Not Retirement
As I wrote for Roger in a blog entitled “Seek Findependence, Not Retirement,” the two terms are not the same. To be sure, you can’t really have retirement if you don’t first achieve financial independence, but seen the other way around, you can be financially independent and yet not choose to retire. Just look around at any big success in the business or art worlds and you’ll see the truth of that. Mick Jagger is findependent but still rocking, and the same can be said for Warren Buffett, Mark Zuckerberg and any number of other artists, musicians, actors and other celebrities.
Most of us are not born on Independence Day but we can all pick a date in the future – not necessarily a birthday – circle a figurative calendar and declare “That’s my Findependence Day.”
A warning though. It’s quite possible that the day after Findependence Day will be very little different than the day before. It happened that I turned 60 in April, almost to the day when the US edition of the book was published. As I related on my Financial Independence blog at MoneySense.ca, I hosted the world’s first Findependence Day Party, complete with balloons and fireworks. The following Monday, I was back at my day job at MoneySense magazine.
Findependence works in concert with related concepts like early retirement, phased retirement and even sabatticals and staycations. My thoughts on the latter can be seen in the blog published just before the one you’re reading now: Rehearsals for Retirement.
To everyone in America, I wish a happy Independence Day.