Financial planning expert Paul Benson says you can live your best life now with the freedom of choice that comes from financial autonomy.
While many financial experts will talk about the importance of ‘financial independence’, Paul Benson gives a slightly different take on the secret to living a financially confident life.
With over 20 years of experience, including a published book and successful podcast, Paul certainly understands the benefits of ‘financial autonomy’, which he said is all about gaining choice.
He explained to KnowHow founder Bushy Martin on the Get Invested podcast the difference between financial independence and financial autonomy, and why financial autonomy is perhaps a more suitable approach.
“Financial independence technically means you’ve got enough financial assets that you don’t need to get out of bed to cover all your living costs. Now that’s great if you can achieve that. But it’s not likely to be affordable for people in their 30s and 40s, especially if they’ve got kids,” Paul said.
“Financial autonomy is gaining choice … and you could say that’s freedom. So, for instance, if what you want to do is cut back to three days a week at work, that choice might be able to be achieved just by restructuring your loans or cutting down on some expenses or moving from the inner city place to somewhere rural.
“I think about financial autonomy as being more achievable, but also more broad. It’s not all about having this big nest egg of wealth and then throwing off this passive income. It’s more around ‘what can I do financially to gain choice, to be happy, to live the sort of life that I want to live?’”
Paul discussed his key framework consisting of six components to achieve financial autonomy. Similar to many wealth strategies, stages one and two are determining your goals and looking at your cash flow.
“You’ve got to start with the end in mind is the catch phrase. We’ve got to know where we’re aiming for, what we’re trying to get to. So start with some goals. Define them. Prioritise them. Goals are you starting point,” Paul said.
“Next point is looking at your cash flow, because if you’re spending more than you’re earning, you’ve just got no hope of going anywhere. So, you’ve got to get your cash flow under control.
“There’s no single right solution one way or another. You’ve got to be in a situation where your income exceeds your expenses, where you’re generating some savings, and then you can use those savings to improve your balance sheet and your asset position.”
The next three components look at three different pathways towards building your wealth, which include shares or stocks, property and self-employment.
However, Paul emphasised that you don’t need to pick one option. Combining multiple can be very beneficial, and people shouldn’t just stick to their knowledge or comfort zone.
“You don’t have to just be a property investor or just be a share investor, you can actually combine those,” he said.
“It’s a comfort issue. If you really do understand one investment space, then you’re not likely to be taken for a ride. But particularly if we just focus in on shares and property, they have quite different attributes and quite different strengths.
“Property’s great primarily because it’s so easy to borrow against … it’s also potentially wonderful from a regular cash flow point of view. If you’ve got a good tenant, then you tend to get pretty reliable monthly cash flow.
“Shares, of course, the attraction is you can invest in shares with a thousand dollars, so they’re much more accessible … but the trade-off is that there’s volatility, and that is really the big one. And that’s what makes people uncomfortable.
“So, they each have their different applications and usefulness. And I think to [limit] yourself to only one is not very wise, it’s a bit lazy. You could learn the other one or you could get someone to help you with the other one. You’ve just got to make the decision to do it.”
The third option, self-employment, may not be suitable for everyone, but Paul said it’s an angle that doesn’t get enough attention and should definitely be considered.
“I’ve just observed who has gained choice, who has done the best in terms of flexibility and freedom. And certainly not all, but many people that I’ve observed, it’s happened because they’ve started a business of some sort and maybe they’ve attained the freedom through selling … or sometimes it’s just a good business that throws off cash and that cash they’ve been able to use to do things that they want to do with their life,” he said.
Whichever decision you make, the sixth and final element is the same – choice.
“You gain choice. Of course, the ultimate outcome is you get to your destination, you get to that objective, that goal you’re trying to hit,” Paul said.
To truly take control, he said people also need to adopt a more proactive mindset and outlook, even in challenging situations.
“Understand your numbers and don’t stick your head in the sand. So if you’re in a position where you’re worried about things … just have a plan in your back pocket. Hopefully you never need it, but it might give you peace of mind if you’ve at least figured this is what we’d do if we really had to,” Paul said.
Paul also promoted the concept of ‘paying a fair price for a good asset than a good price for a poor asset’, whether it’s shares, property or buying a business.
“Sure it’s great to get a bargain. But, if there’s something good that you can see really makes sense, don’t try and squeeze yourself a bargain and miss out on that opportunity. Pay a fair price if it’s a good asset and move forward,” he said.
Want to know more? Listen to Bushy Martin’s full interview with Paul Benson here.
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