August 03, 2023

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Good day. The definition of financial independence is elusive, but for many, a decent benchmark is reaching a million in net worth. But, this is far less common than we might think — can you guess how many Americans are millionaires? a. 10.7M b. 21.9M c. 56.6M. Follow the wave 🌊 below for the answer.

Here are the topics for today:

Remember Your Mid-Year Financial Check-up
Defining Financial Independence
Wages Are Finally Keeping Up

FINANCIAL PLANNING

Remember Your Mid-Year Financial Check-up

Some have no shame in going to the doctor many times a year, but for others, having to schedule a visit to their doctor just seems like more trouble than it's worth sometimes.

Luckily, financial check-ups can be done without needing a doctor at all, you can actually DIY the whole experience. Good habits will eventually allow you to put this on auto-pilot to an extent, but it's important to run the numbers sometimes to see where you stand.

Here are a few things to check on

Review your employee benefits: Now is a good time to review your work benefits to see what you missed or to prepare for open enrollment. For example, if you have a high deductible health plan, max your contributions to an HSA (health savings account) because they offer a triple tax benefit. Other work benefits you may not know you have include things like insurance (most commonly, group life or pet), mental health resources, and wellness stipends.
Check your credit report: Some of us obsessively check our credit scores every month like it's the newest CPI report or something. Do we have OCD? Maybe, but at least we know where our score stands. If that's you, great, but if not, here's your reminder to check it. Luckily, it's simpler than ever to do. Many major credit card companies offer monthly reports to their users, and you can also get a free annual credit report from annualcreditreport.com, a site jointly owned by the 3 largest US credit reporting agencies.
Explore where you can get a tax break: Take advantage of opportunities to lower your taxable income by contributing to tax-advantaged retirement accounts like an IRA or a 401(k). If you have a retirement plan at work, make sure you're contributing at least enough to get the entire match (aka "free money") from your employer.
Look at your portfolio and reassess: If you're not an active trader, you might not be logging into your brokerage account every day to check on your retirement or taxable investing account balance. Because of course, time in the market beats timing the market. At the end of the day though, there's a balance between being completely passive and completely active, and an important part of that mix is keeping a regular check on your accounts and their holdings.
Protect what you have and your family: Every year, evaluate your insurance needs to make sure you have the right amount and type of insurance to cover unforeseen events that could seriously impact your finances. Life insurance may be a good place to start and is mainly designed to replace lost income. Also, consider estate planning — we're talking about wills, trusts, power of attorneys, and health care proxies.

GENERATING WEALTH

Defining Financial Independence

Financial independence is an ambiguous term that comes with equally ambiguous connotations, it all depends on who you ask. For some, the phrase implies the ability to go the rest of their lives without needing to work, whereas, for meeker folks, it just means not having to worry about money.

Ultimately, the idea has no single definition we can point to, and the truth is that your definition is as good as anyone else's. So, how do you find out where you stand on the matter? Evaluate your beliefs.

Finding your FI moral compass

The main question here is "At what point would you feel good and relaxed about your financial situation, and what would achieve that end goal?" Financial independence is essentially your personal finance utopia and how you define it. Would it be via excess savings, a high-income, passive income, or simply a good salary and set for retirement?
Once you've found an answer, the next step is to find a way to reach that level. This is the difficult part of financial independence chasing, but it's entirely achievable if you develop a solid plan and stick to it.

Here are some key things to focus on

Lock down the basics by establishing an emergency fund, investing for retirement, and paying off your debts. Did that? Great, now circle back and do it again. Keep expanding your savings alongside your investing to the best of your ability throughout your entire financial journey.
Next, expand your income: The amount of money you can save and invest is limited by how much you make. Income is a snowball — the more you make, the more you can make, it takes money to make money, etc. This is easier said than done, but it's achievable if you develop a responsible plan and don't give up on it, which is why many fail. More specifically, focus on upgrading your skills, education, industry connections, and overall marketability.
Protect your money: If you're well on your way to a good income and stuffed investing/savings accounts, the last thing to do is manage this money carelessly. Make sure your cash is earning a competitive yield, your investments are allocated properly, and you're making use of all the tax advantages available to you.
Don't be afraid of help: Most people don't become "wealthy" without a trusted financial aristocrat by their side. While it can be tempting to go at it alone just because you know a lot, no one can remember everything, and having a professional set of eyes to help be your guide is almost always a plus.

ECONOMY

Wages Are Finally Keeping Up

We've come a long way in the battle against inflation. The economy has gone from year-over-year CPI numbers of 9% or more to just 3% in what seems like the blink of an eye, and managed to do it without triggering a recession either.

Another positive of this (so far) smooth landing? Wages have finally begun to keep up with inflation, at least for now.

How so? Data on wages lag a bit since it takes time to gather, but the most recent numbers showed this — median weekly wages were up to $1,100 in Q2 of this year, up 5.6% from that same time period a year ago.

Important to note: This number is pre any taxes, deductions, tips, commissions, and more.

Inflation averaged 4% during that same time period, meaning yes, wages did outpace inflation for once, and of course, it's now fallen even further to 3%.

Other observances: Women's median weekly earnings were 84.1% of men's at $993 compared to men's $1,181, and earnings were also spread unevenly across different ethnicities as well.

🌊 BY THE WAY

by the way

🏠 Answer: 21.9M people. The latest data shows that roughly 22M people in the U.S. have a household net worth of greater than $1M, representing only about 6.6% of the population (Finmasters)
✈️ Trying to save on airfare? Cautiously consider "skip-lagging" (CNBC)
👋 ICYMI. A few ways to catch up on your investments (Finny)
🏈 NFL officially approves sale of the Washington Commanders (Axios)
📚 Finny lesson of the day. Financial independence has a different definition for all of us, but there are some important parameters that you'll find common for everyone:

What is Financial Independence?

Retirement Planning

6 mins

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