Rethinking Retirement  
 

What is Financial Maturity?

by Keith Weber 

What's the difference between being financially independent, financially secure, or financially mature? Early in my career, I probably would have said not much. But during 20 years in the financial services industry I've discovered there are indeed big differences.

Let's start with some definitions. Financial independence is achieved when you have accumulated enough in investment assets that the income those assets produce can reasonably be expected to meet your needs for the rest of your life.  In other words, you no longer have to work to produce income.  As long as you can reasonably foresee and anticipate your future expenses, it's a reasonably logical black or white calculation.

Financial security, on the other hand, is an emotion. To many people, financial security is defined as freedom from worry. It's a state of being so confident in your financial situation that you no longer worry about whether you'll have "enough."  That feeling of confidence allows the financially secure the freedom to live their lives as they want to and dedicate their energies toward activities that are personally meaningful.  For many financially secure people, those activities might very well include some kind of paid work that is still necessary to pay the bills. They may not be financially independent, but they are confident enough in their financial situation to pursue the life they want and feel secure in doing so.

But one thing that puzzled me for a number of years, is why I would very often see people who had accumulated large amounts of wealth - multimillion dollar estates - who clearly were financial independent, but would stay in jobs for which they had little passion because they felt they needed more. If they had $5 million they felt they needed $6 million. If they had $6 million they felt they needed $8 million.  On the other hand, I often saw people who were not financially independent who were willing - in some cases eager - to give up their high-paying jobs to pursue their passions. What was the difference between these two types of people? Financial Maturity.

Financial Maturity is a combination of four elements that lead to confidence in our financial plans. The first is the need to educate yourself in the areas of personal finance. Since we often fear what we don't understand, educating yourself is the first step toward overcoming that fear and gaining that feeling of confidence and security. While you don't have to become an investment expert, you should have a working knowledge of your personal financial statements, assets, debts, income and expenses, tax rules and the impact each has on the other. If you are considering giving up your current income stream by retiring or changing jobs, you should also understand basic income distribution strategies. Knowledge of personal finance issues is the first step to Financial Maturity.

Secondly, you need to prepare yourself in two ways. You need to save and accumulate assets, but you also, and perhaps more importantly, need to get a very firm understanding of your total expenses that are required to support your lifestyle. How much is “enough” to save and accumulate for financial independence is directly dependent on how much you spend. Likewise, if you are not ready for retirement but would like to consider a job or career change, knowledge of your expenses and potential income from your accumulated assets is critical to developing an earnings strategy that will allow you to make that change.

When we’ve educated and prepared ourselves, the third element is to exercise the discipline to stick to our plan. For many this has a negative connotation that feels restrictive or limiting. But for the Financially Mature, that discipline represents freedom and peace of mind. Just as our social freedom depends on rules of law that serve a greater purpose (the safety and security of everyone) so too does our financial freedom. For the Financially Mature, the discipline to live within their means supports the greater purpose of creating the freedom to spend their days pursuing the activities they choose. That same discipline also provides the peace of mind that comes from confidence in our financial security.

The final element of Financial Maturity is in having a healthy relationship with money. Virtually every major decision we make involves some consideration of the monetary consequences. What we do, where we live and who we associate with are all impacted by our attitudes and beliefs about money. Often, those attitudes and beliefs come from childhood or cultural experiences that taint our perspective. Examining the source of our attitudes and beliefs allows us to discard those that no longer serve our purpose. It then allows us to create a new set of attitudes and beliefs that are aligned with our values and purpose. By aligning our attitudes, beliefs and actions around money with our personal values and purpose, we create a healthy perspective that eliminates much of the stress and turmoil that money creates in our lives.

As with so many things, we often tend to put the cart before the horse. Sure we would all like to be financially independent. But financial independence, like financial security, depends first on becoming financially mature.
 

Keith Weber has been in the financial services industryfor over 26 years. He is now a consultant, speaker, and Certified Professional Retirement Coach helping people prepare for the non-financial aspects of retirement. The information presented here is for educational purposes only. Please consult a qualified financial advisor for assistance regarding your specific situation. Keith can be reached at info@rethinkingretirement.com or for more information, visit www.kjweber.com.



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