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Create a declaration of financial independence for clients

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The NFL performs a wonderful tradition before the Super Bowl starts. Football stars from the past and present, along with organizations from the cities they represent, read aloud the Declaration of Independence. It makes me feel proud to be an American.

This year, as I watched, I realized that Americans need a “Financial Declaration of Independence.” It should have equally clear goals and ideas that help Americans achieve financial freedom.

We hold these truths to be self-evident:
That we must reduce (or eliminate) our debt
As in Proverbs 22:7, “the borrower is servant to the lender.” Credit card interest rates can soar as high as 30 percent, so debt reduction provides better returns than any investment could offer. Also, reducing debt frees up money that can then be invested in Roth IRAs and cash value life insurance.

That we must become good savers
Not a good investor but a good saver. Achieving financial independence requires a systematic methodology for saving your money and the discipline to keep the money saved. The richest generation, the parents of the baby boomers, put their money in building and loans and earned 1 or 2 percent on their savings. Now, 80 percent of our country’s wealth is concentrated in the hands of people over 60, primarily because they were such diligent savers.

John Savage, an industry icon, had an elegant way to explain the importance of saving. He drew two large circles on a blackboard. Inside the first circle he wrote “people who spend first and save the difference.” Inside the second circle he wrote “people who save first and spend the difference.” And then he said, “Do you know what is interesting about these two circles? The people in the first circle usually work for the people in the second circle. Which circle would you like to be in?”

And that we must save efficiently and effectively
Take advantage of tax-deferred and tax-free savings vehicles while they are still available. Tax deferral of all types (provided by 401(k)s, profit-sharing, 403(b)s, IRAs, annuities, etc.) jet propels money into the future using triple compounding. Triple compounding is interest on principal, interest on interest and interest on the taxes that would have been paid if the earnings had been taxed on an accrual basis.

You provide the only three vehicles that allow people to pay taxes now while they are “on sale” and transfer money to the future where it can be accessed without taxes. They are cash-value life insurance, Roth IRAs and 529 plans.