Becoming Financially Independent: Leading Off from First Base

Recently, I’ve been exploring the wealth game and what it takes to win. Up to now, I have introduced the game and discussed how to avoid the employment handcuffs that come with reaching first base. You see, merely reaching first base (aka entering the workforce) isn’t enough. Those who remain on first for their entire career have very little chance of becoming financially independent. They’re shackled to their job because they have too much debt to take the necessary risks involved in creating personal wealth. In today’s entry, I want to look at what you can do to lead off from first base, on your way to second.

Follow Along With The Financially Simple Podcast!

• A recap on home plate and first base of the Wealth Game
• Lifestyle creeps and the trappings of first base
• Understanding the power of compound interest
• The statistics on savings and retirement funds
• What the second base represents in the Wealth Game
• What an asset is and the differences between appreciating and depreciating assets
• Some examples of assets that we can grow in value
• Getting started in building assets that help us gain financial independence
• What I love about employer-sponsored retirement plans
• Capitalizing on the cryptocurrency buzz
• The importance of creating budgets and paying yourself first

Leading Off Toward Becoming Financially Independent

As I’ve discussed in the previous entries in this series, many Americans don’t understand that building wealth is a game. If you’re not aware that you’re playing a game, chances are, you’re not going to play it very well. I believe this is why so many people find themselves stuck on first base with no plan to advance to second. Rather than running straight through the bag and being satisfied that you’ve gotten on base, you should be approaching it with an “extra bases” mindset. Once you’re on first, you want to focus your efforts on leading off and positioning yourself to make a run for second.

Unfortunately, many American workers reach first base with no plan for moving to second. They begin earning a little income and fall victim to something called “lifestyle creep.” It’s normal to want to enjoy the fruits of your labor. Maybe you’re like me and you’ve got your eye on that shiny new four-wheeler or fishing rod. You could be like my dear, sweet wife, Miss Emily, and have an obsession with purses and shoes. Perhaps, you’re not spending your money on these types of things at all. You might be putting your extra cash toward your grocery budget, opting for extra fancy ketchup, instead of just fancy ketchup. Whatever it is, lifestyle creep can become an obstacle in your pursuit of becoming financially independent if you don’t have a plan. Don’t believe me?

As of 2022, 64% of American workers are living paycheck to paycheck. That means every dollar earned is going toward keeping up their lifestyle without a plan for the future. This isn’t unique to lower-income families either. Even among those who are earning six-figure incomes, 48% are living paycheck to paycheck. In fairness, inflation has played a part in this. But the number of paycheck-to-paycheck households was still extremely high before our current inflationary trend.

Retirement Savings: Your First Step Off of the Bag

One of the simplest things you can do to begin leading off first is to participate in your employer’s 401(k). This requires very little effort and you can set it up to have your contributions automatically withheld from your paycheck. Additionally, you may receive an employer match on your contributions up to a certain percentage. That’s just about the closest you will come to “free” money, friends. Yet, retirement savings aren’t prioritized as they should be.

The reality is that the average American doesn’t begin saving for retirement until they are 31 years old. Think about that. The average person doesn’t begin to save for their retirement until 14 to 15 years after they’ve entered the workforce. Of those who have begun investing in their retirement, just 39% began doing so while they were in their 20s. Just over 25% began in their 30s. It gets worse.

Half of adults between 18 and 34 aren’t saving at all. Perhaps even more alarming, 42% of adults aged 35 to 44 and 40% of adults from 45 to 64 years old, have no retirement savings. Folks, these are people who have spent a lifetime stuck on first base. Now, you might be thinking, “Justin, that’s not really a big deal, when you consider that we’re talking about first base as your first job.” Here’s the thing, if you’re not actively working to gather assets that can propel you to the next level, you’re losing the wealth game.

Building Assets: The Path to Second Base

Before you can become financially independent, you must begin to accumulate assets. But what counts as an asset? Investopedia defines an asset as “a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.” So, that could be a business, stocks, bonds, coins, etc. Some would even say their home is an asset. I disagree with that because, although you could sell your home, you would still need a place to live. So, I prefer to stick to assets that appreciate in value and won’t require replacement once they’re sold.

Now, as I mentioned earlier, you can begin building assets by participating in your employer’s 401(k). In addition to providing a vehicle for you to save for your retirement, participation offers additional benefits such as reducing your taxable income. In 2022, you can contribute up to $20,500 per year to your 401(k). Those of you over 50, can contribute an additional $6,500 through the “Catch Up” provision. Similarly, you could take advantage of tax-deferred growth. You can watch your money grow year by year without paying taxes on it. This is because you’re not required to pay taxes on monies invested in tax-deferred plans until you withdraw them.

Taking a Few More Steps

Beyond participating in your employer’s retirement plan, you can take additional steps to increase your lead-off and propel you toward second base. First, you can begin keeping a budget. I know. I said the “B-word.” But contrary to popular opinion, budgets are liberating. They put you in charge of where your money goes. If you’re the type of person who really enjoyed dining out, you can set a line item in your budget to allow you to do that. Maybe you’re planning to take the vacation of a lifetime. Budgeting can allow you to allocate money toward that goal each month. It might even help you reach that goal faster. However, if you don’t follow a budget, you really can’t track your spending and, more than likely, you’re missing some big opportunities to save.

Next, you must remember to pay yourself first. Too often, people begin throwing all of their money into debt reduction. As someone who hates debt, I understand wanting to eliminate debt as quickly as possible. However, if you’re not putting something aside for yourself, you won’t be out of debt for long. But why? You need to have enough money in your savings account, to cover you and your family through any reasonable crisis.

Finally, you must begin building your portfolio. Speak with an advisor about your situation. Together, you can build an investment portfolio that meets your needs. If you don’t have an advisor, our team would be happy to help you get started. However, if you can’t afford an advisor now, there are plenty of options available to help you out. You could choose to use a Robo-Advisor or any variety of investment apps on the market. The important thing is to get started. The longer you wait, the more difficult it is to get off of first.

Wrapping Up…

There’s so much uncertainty and turmoil in the world that it might seem impossible to become financially independent. But knowing you’re in the game is the first step. The wealth game can be frustrating but it doesn’t have to be. You’ve made it to first base. Now it’s time to start building assets and turning your attention toward second. With a little discipline and an understanding of the game, you can make winning the wealth game at least financially simple!

Are you stuck on first base? It’s not too late to move on. Reach out to our team to learn how we could help you achieve your goals.