Yesterday we examined the three weaknesses in the traditional retirement planning model.
In short, that approach pits us against the tax code… is vulnerable to inflation… and it forces us to choose between having assets or having income.
Today let’s talk about a more comprehensive approach – one that mitigates each of these weaknesses.
My philosophy is simple: Financial security first. Then financial independence.
I define financial security as the ability to weather any sudden change or emergency for an extended period of time in relative comfort.
It’s a simple concept. In mainstream circles, they would say it’s about “having money”.
That way if we were to lose our primary source of income or incur an unexpected large expense – we’re good. We have the resources we need to handle the issue without it disrupting our life.
But here’s the thing – we don’t want to have money. They are printing money by the trillions. It’s guaranteed to lose purchasing power year after year. Instead, we want to have assets.
For true financial security, we need to build a portfolio comprised of several distinct assets. They are: cash (strategically warehoused), gold, Bitcoin, a tactical stock portfolio, and alternative investments (including the items we need for home resiliency).
Each asset class serves a different purpose for us. But collectively they mitigate any risks we may face. And if we are strategic about this, our asset portfolio will grow in value over time – regardless of what happens with the economy, inflation, interest rates, or the stock market.
Here’s how it works…
If we want to attain financial security, we must first assess our personal situation. Are we married? Do we have dependents? Do we own our home or do we rent? What does our cost of living look like relative to our income? How stable is our income? Are there any immediate risks we face that could disrupt our life?
Based on this assessment, we then come up with a number. How much money would we need to have available to us in order to pay our bills, support those who depend on us, and maintain a comfortable lifestyle without worry for an extended period of time?
I would say that’s six months at the bare minimum. But a year or more would be better.
That number will be different for each of us. Whatever it is, we then create an asset allocation model custom-tailored for our own situation. That model tells us exactly how much money we need to put into each asset class.
For example, let’s say our financial security number is $100,000 – just for easy calculations. And let’s say we determine our ideal asset allocation model is the following:
- Cash: 30%
- Gold: 10%
- Bitcoin: 30%
- Stocks: 25%
- Alternative Investments: 5%
This tells us that we need to have $30,000 in cash and Bitcoin… $10,000 in gold… $25,000 in stocks… and $5,000 in alternative investments. That’s how we spread out the $100,000 to achieve true financial security.
[Side note: there are much better ways to warehouse cash than simple checking accounts.]
Now the next question is: do we already have $100,000?
If so, it’s just a matter of repositioning it. If not, we need to save as much of our income as possible and use it to gradually build out our model over time.
Simple, right?
So once we have a robust asset portfolio in place equal to our personal financial security number – $100,000 in this example – then what?
Then it’s time to create financial independence.
This is all about building streams of monthly cash flow. That is to say, we need to create passive income for ourselves. The goal is to work up to the point where our passive income exceeds our cost of living.
Believe it or not, there are all kinds of ways to do this. Rental properties… mortgage notes… private lending… royalties… passive businesses – there’s plenty of opportunity out there.
It’s just that these items get very little exposure in mainstream investment circles. They all take a backseat to the stock market… because our financial institutions command gargantuan advertising budgets and get all the media attention.
Inside our investment membership The Phoenician League,we talk at length about creating a cash flow wealth strategy. That strategy lays forth our investment criteria and helps us determine which passive income investments we’re willing to consider.
With our financial security portfolio solidified and our cash flow wealth strategy in place, we’re now free to focus our time and resources on building passive income via our chosen method.
The beauty of this approach is that in order to grow our monthly cash flow, we must go out and acquire high quality assets. That means as our income goes up, so does our asset base. We aren’t forced to choose between the two.
Then, once our passive income comfortably exceeds our expenses – we’re there. We’ve achieved financial independence.
And guess what?
We never have to sell off our assets in order to fund our retirement. Instead, our assets will keep throwing off income for us month after month, year after year.
Then if we do proper estate planning, we can pass our cash flow empire down to the next generation in a responsible, tax-efficient way.
And then maybe – just maybe – humanity can finally get off the hamster wheel.
-Joe Withrow
P.S. For more on this approach to personal finance, please see our urgent financial training for 2024. You can find it right here: https://financeforfreedomcourse.com/training