In my early years, I never really thought much about financial flexibility or appreciated what it was. Upon reflection, however, I have inherently pursued it and I am grateful I did. Because without the flexibility, I would not have been able to buy our historic house, allow my college-aged daughter to pursue her international career or allow me to change careers several years ago.
Financial flexibility, to me, is best defined as having the economic wherewithal to pursue your goals as desired and to take advantage of the unique opportunities that will present themselves in your life. Examples that immediately come to mind include buying a special house, taking a trip, starting a family and changing careers. From a purely practical perspective, it has two dimensions – 1) maximizing your savings/investments and 2) and minimizing your debt/cash flow obligations.
The only way to achieve flexibility (other than winning the lottery and often that does not work) is to have a disciplined and intentional approach to your day to day money management, that incorporates the following:
- Identify your immediate, medium and long term goals and stick with them. They may change over time, however, it is only with clearly identified goals that you can avoid spending money haphazardly or in an effort to keep up with your neighbors (at that point you are pursuing their goals, not yours).
- Live below your means, and save 10 – 20% of your paycheck. This may be difficult at first, but will prove easier if you put any pay increases (and bonuses) toward your savings, and if you have payroll deductions taken directly to savings.
- Always maintain a liquid, emergency fund equal to 3 -6 months of your salary to cover any emergencies.
- Limit debt to your mortgage and perhaps your first car, and in no circumstances carry any credit card debt
Of course, it is easy to say “save and don’t borrow”, and many would complain “Its not fun… I want to live life.” A fair comment, but totally off the mark, once you realize that it is only through achieving financial flexibility that you will be able to afford and full fill your true goals and plans; and ultimately, achieve the personal peace of mind and sense of control that accrues from being financially flexible and secure.