How to Find Financial Freedom
- Thursday, September 03, 2009
With God as your pilot, you can take control of your financial destination. You cannot control what the stock markets do, but you can control how much you allocate toward your goals. Leave nothing to chance. Stop relying on the government, stop counting on your company, and take responsibility for your future. There are three plans you can primarily focus on as a faith-based investor:
1. The Government Plan
This is, in two words, "Social Security." Nearly two-thirds of today's elderly count on Social Security as their primary source of income. Can you imagine that? Each year, gas, groceries, health care, and other goods go up in value, and their paychecks buy less and less. This is a plan for disaster. I have seen many elderly lose their homes and independence because they relied on the government to take care of them. Over time, this plan will not lead to financial independence.
2. The Company Plan
For some this may be a pension. This may have been the case for many in the private sector years ago. However, according to the Employee Benefit Research Institute, less than 18 percent of those in the private sector today will be able to rely on any form of pension. Companies left and right are abandoning, freezing, and altering pension benefits mainly because people are living longer, thus severely increasing the costs to corporations. Even cash-rich private companies like Fidelity Investments are choosing to get out of the pension business for their employees. You may be saying, "Well, I have a 401(k) or 403(b) or another self-funding retirement option at work, so I will be in good shape."
Maybe yes, maybe no!
There are three major problems with tax-deferred plans at work:
A. Limited Choices. For most, this provides two challenges: the limited ability to screen your investments for moral issues (see previous posts) and the limited ability to find the best investment vehicles (place to get the highest potential return).
B. High Fees. Most retirement plan fees are hidden beneath layers and layers of costs assumed by mutual funds. There are the widely publicized expenses reflected in the prospectus of the mutual fund listed under the expense ratio. But there are also trading costs, commissions, and other fees that you can find only in what is called the Statement of Additional Information (SAI). These additional expenses are difficult to determine, but a 2007 analysis by Virginia Tech, the University of Virginia, and Boston College revealed that the average SAI charge is 1.44 percent per year. This is in addition to the 1.56 percent charged by the average Annual Expense Ratio. In other words, the total charge of the average mutual fund is 3 percent per year.
C. Tax Time Bomb. Make no mistake about it. The government knows how to generate future tax revenue at your expense. They do this by allowing you to take tax breaks today in exchange for much larger tax bills in the future. Many people just look at the tax benefits of tax deferral and neglect to factor in that what used to be a $5,000 tax write-off is now a tax bill for tens or even hundreds of thousands of dollars. Uncle Sam is no fool. He's figured out how to entice you into funding his future spending. Our government has been doing too much of this lately! Don't even get me started!
3. The Faith-Based Investment Plan
This plan allows you to better control your tax bill, your investment choices, and fees. Dr. Stanley Thomas, who wrote The Millionaire Next Door, simplified the basic guidelines that most millionaires follow. They maximize income, give generously, minimize expenses, and invest regularly. It seems so simple, yet most struggle to do all four. Living below your means is the key! Are you willing to sacrifice short-term temporary pleasure to have greater freedom in the future? Knowing what God truly desires for your life is essential. Once you are in God's will, He will fulfill the desires of your heart. You may be in preparation mode or already there. Know what you want, and make choices that will lead you where you need to go.
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