5 Ways To Add More Financial Flexibility To Your Life

There’s one more thing we know with certainty about life, in addition to death and taxes:

Things change.

You change.

If you believe that the person you are today is somehow fixed, that you’ve finished learning and growing, you’re in the end of history illusion.

You misunderstand or underestimate the magnitude of future change that you’ll continue to go through.

That illusion can get you into serious financial trouble if you create a financial plan that assumes what you want now is what you’ll always want, be it 5 years into the future or 50.

Expect Change — And Build A Financial Plan That Accounts For It

To gracefully move from one phase of life to another — or to simply successfully pivot because you decided to — you need financial flexibility.

Your plan should account for truths like the facts that:

1. What you want right now is probably not what you will want (or need) in five to 10 years.
2. However change shows up in your life, it will almost undoubtedly create an impact on your finances.
3. You are the only real authority on what you value at any given point in time; you get to decide what’s worth it in terms of how you use your money.
4. And you need to put guardrails on the present you, to avoid decisions that deprive the future you of the ability to want different things.

Getting proactive about how you manage your money right now gives you the power to confidently navigate whatever those changes may be in your own life.

Here are five ways to do just that.

1. Save More Than You Think You Need Today

It is very, very difficult to overstate the power of your ability to save money.

A high savings rate — or the percentage of your income that you contribute to long-term savings and investment vehicles designed for asset growth — can have a bigger impact on your ability to grow wealth than the rate of return you get on that investment portfolio.

I created the following charts to help illustrate this:

This shows two sample households, the blue on the left and green on the right. Each household has the same earnings with the same growth rate on that income. They each contribute a portion of their income to their investment portfolio each year.

The household on the left saves 10%. The household on the right saves 25%.

All else being equal, the household that saves more will obviously end up with more. But many people are tempted to think that a household can get away with saving less, as long as they are great investors earning big returns.

The point of those charts is to show, yes, theoretically, it’s possible for a bigger investment return to make up for a lack of savings — but it’s virtually impossible in the real world because of how high that investment return would have to be to catch up with the better savers.

The household only saving 10% of their income would need to secure a more than 14% return on their investments on average in order to have the same ending balance as the household that earned a modest (and very achievable) 6% return, but who saved 25% of their income along the way.

That kind of return is extreme, and virtually unachievable in the stock market over 20 years.

Rates of return U.S. large cap equities, which is essentially the S&P 500, over the last 10 years were 13.54%.

So even if you lucked out and threw all your money into the one part of the market that happened to outperform over the last decade, it still wouldn’t have been sufficient to make up for saving less.

You cannot control the market. You cannot guarantee investment returns. Chasing them is the wrong thing to focus on if you want to build financial freedom and flexibility.

If you want a number to fixate on, forget about returns. Get obsessed with how much you contribute to long-term investments each year.

The earlier you save and the more aggressively you do so at the start, the more freedom and flexibility you have to adjust that savings rate in the future.

It’s easy to turn the savings dial down if you realize you can afford that. It is extremely hard to reduce spending in order to save more (especially as you get older and more habituated to whatever you’ve done previously).

2. Invest Wisely With A Long-Term Strategy

Giving your assets time to benefit from the power of compounding is mission-critical to building wealth. You also need to manage risks along the way, avoiding what’s not actually necessary to take on in order to reach your financial goals.

Diversification is one of the key ways investors can mitigate general market risk. Investing for the long-term is another important strategy.

Time in the market is more important than timing the market.

Knowing this means:

• The best time to start investing was yesterday; the second-best time is now.
• That’s regardless of current market conditions.
• The market has historically provided the most consistent rewards to patient, long-term investors.

You might feel like you’ve been investing for many years if you started five, even 10 years ago. But the reality is, you’re just getting started.

Five years can feel like a long time when you’re living it. When it comes to investing, though, it’s nothing.

Double that time frame to 10 years, and you’re still not in long-term territory. Fifteen years? Getting closer.

We’re starting to talk “long-term” once we’re looking at 20 years.

The chart below shows the growth of the S&P 500 over the last 97 years. The drops probably don’t look all that scary from this perspective, given you can see that the market trended up over time:

But therein lie two core challenges for the truly long-term investor:

For one, we live at the end of the chart. Constantly. It’s easy to lose long-term perspective when you’re experiencing things in real time.

And two, we don’t live within these data-driven charts.

We live and feel the everyday realities of our lives, in the real world as one crazy thing after another happens, at the pace of one day at a time.

So much happens in a single year; the change that can take place within our life after 5 years is wild. (The market also reacts to these things in real time, which is where you’ll see short-term volatility.)

But when it comes to our core investments made to help us grow wealth to fund our lives into the future, we have to remember that one year is a blip.

Five years is short, too. Ten years is just starting to break into a “mid-term” time horizon.

Your money won’t benefit from timing the market, but it does need time in the market — and a lot of it.

3. Take Calculated And Carefully Managed Risks

There’s no point in working to grow your assets if you’re putting them all in jeopardy by ignoring the risks inherent to, well, everything.

All investing comes with risk. All of life comes with risk. It’s not realistic to think you’ll live 90 to 100 years on earth and never have a single thing go wrong.

That’s why protection planning is a critical piece of any financial plan that’s designed to be dynamic and flexible. You need contingencies for when things don’t go quite how you hoped, imagined, or predicted.

You can get those in place by:

• Using proper diversification strategies within your investment portfolio, and avoiding concentrated positions or highly speculative market bets.
• Getting the right insurance policies for your situation (which means having enough insurance to meet your needs but not more coverage than you need or a policy that doesn’t suit your circumstances, and therefore shouldn’t be paying for).
• Talking to an estate planning attorney to protect yourself (in the event of a health emergency) as well as your assets, property, dependents, and heirs.

4. Avoid Choices and Commitments On The Premise Of Uncertain Income

Most of our wealth management clients earn some form of variable income. They might earn periodic commissions; they might receive quarterly or annual bonuses. Many earn equity compensation, usually in the form of RSUs.

These are all great benefits, but they present a planning challenge: You never know exactly how much you’ll earn in a year because the value of these compensation structures can fluctuate up and down.

So, things can go sideways if you try to build a plan that’s predicated on either: a) always receiving this additional compensation in addition to normal W-2 income; and b) having that additional income always be of a certain value.

Equity compensation and generous bonus structures can be an incredible tool to build wealth, and build it fast.

But these packages can also wrapped in uncertainty, especially around equity thanks to share price movements, and you have to respect that.

To properly manage this within your financial plan in a way that maintains your flexibility and doesn’t lock you into golden handcuffs with your employer, consider:

• Using conservative assumptions in your planning
• Avoiding taking on fixed costs that rely on receiving new grants either at a particular value, or for a set amount of time
• Having a systematic way of handling new grants that protects you against downside risk (like selling shares and reinvesting proceeds in a diversified core portfolio)

5. Know Your Values

There’s one final, very simple thing you can do to help provide financial flexibility and freedom for yourself:

Know what you value. Don’t get distracted by things that don’t actually matter to you.

By getting crystal clear on your values and knowing what’s most important, you can properly prioritize where each of your hard-earned dollars goes next.

You can more freely to say “yes” to what aligns with the life you want to create, and use your money to realize that vision.

A truly dynamic financial plan is one that can flex and change as you do. Managing your money this way allows you to grow, shift, and evolve throughout life — without sacrificing security or opportunity.

By prioritizing savings, investing with intention, managing risk, being mindful of income variability, and staying anchored to your values, you give yourself the power to navigate whatever may come next.

The more intentional you are today, the more flexibility you’ll have to live your life on your terms throughout the future.