What is Financial Independence?

If we had a pound for every time we heard the phrase, ‘My business is my pension’, we would be happily retired ourselves by now.

It is still a commonly held belief that a business will provide a full-proof retirement plan, allowing you to live off the fruits of your labour when you step down. We regularly have to burst that bubble and explain that this is simply not the case.

The concept of financial independence is simple. You aim to become financially independent from your business by the time you retire or pass that business on to the next generation.

This means you won’t have to rely on a single penny from the business from then until your dying day. In effect, you are able to live the life you want to live, on your terms, without any fear of running out of money.

For some business owners this may be achieved via a business sale. The lump sum can then be invested to provide any capital growth or income that is needed.

However, this is not always an option when it comes to a family business. Typically, where the intention is to pass the business on to the next generation, sums of money are not always transferred.

In this scenario, how do people finance their retirement?

Well, in a lot of cases they don’t.

This often causes a knock-on effect, for example if the senior generation needs to hang around in the business far longer than is necessary. This can lead to resentment from the next generation.

Having a carefully considered and well-structured plan is an excellent solution to this issue. Your plan will allow you to build sufficient wealth outside the business so you are able to pass it on (if that is the desired outcome) without having to worry about needing to take an income from it during retirement.

Starting this process early is essential and, once again, failure to do so is one of the most common barriers to success. Leaving a five-year window to implement such a plan is likely to insufficient.

Simple financial planning
Pensions and investments typically get a bad press, but this is mainly because we only hear about the bad outcomes.

Diversifying your wealth so that are you independent of your business and that you are able to take advantage of all of the tax allowances on offer is very sensible. You don’t need to do anything elaborate or controversial; it’s just a case of simple financial planning.

Financial planning and the concept of financial independence is simple, but in practice it is not easy.

We are here to help.