18 March 2024
Margo Lestz
Head of Communications
Have you ever thought about financial freedom? What does that mean to you?
Financial freedom is a personal journey, and what it looks like varies from one person to another. For some, it might mean being debt-free and having enough savings to cover living expenses for the rest of their life. For others, it might involve achieving a specific level of passive income that allows them to quit their day job and pursue their passions full-time.
It means different things to different people, but at its core, financial freedom is about having the ability to make choices without being constrained by financial concerns. It's being able to live life on your own terms, pursue your passions and achieve your goals without the burden of financial limitations. It encompasses your state of mind, your lifestyle and how you relate to money.
To determine the amount you'll need for financial freedom, there are many factors to consider, such as your desired lifestyle, expenses, goals, and risk tolerance. And since we are looking at a time in the future, you’ll need to make assumptions and educated guesses.
However, there are some steps you can take to help you get on the right track for identifying and achieving your version of financial freedom.
What is Financial Freedom for You?
Define Financial Freedom: The first step is to determine what your personal version of financial freedom looks like. This is a very personal definition and can be as simple or complex as you like. Really think about what financial freedom means to you and write it down.
Determine Your Financial Freedom Lifestyle: Consider the lifestyle you want to have in financial freedom. This includes your housing situation, travel plans, hobbies, and other discretionary expenses. Be realistic but also think about what truly brings you happiness and fulfilment.
How Much Will You Need?
Calculate Your Expenses: How much will it cost to live this lifestyle? Estimate your monthly expenses in detail. Include all necessary expenses such as housing, utilities, groceries, transportation, insurance, healthcare, and debt payments. Then, add discretionary expenses such as entertainment, dining out, travel, etc.
Factor in Inflation and Emergencies: Since your financial freedom lifestyle is probably in the future, you need to take inflation and unexpected expenses into account. A common rule of thumb is to add a buffer of around 10-20% to your estimated expenses to accommodate for unforeseen circumstances.
Calculate Your Financial Freedom Number: Your financial freedom number is the amount of money you need to sustain your desired lifestyle indefinitely. This can be calculated by multiplying your expected annual expenses by the number of years you expect to live in financial freedom (considering factors like life expectancy and potential changes in expenses over time).
How Much Do You Have?
Assess Your Current Financial Situation: Now that you know how much you will need to live your financial freedom lifestyle, take a good look at your current situation. Take stock of your income, expenses, assets and liabilities. You must understand your net worth and cash flow to get a baseline from which to start planning.
Consider Investment Returns: If you plan to invest your savings, consider the potential returns on your investments. This can help you determine how much you need to save and invest to reach your financial freedom number.
Do You Have a Plan?
Adjust and Re-evaluate: Your financial situation and goals may change over time due to various factors such as changes in income, expenses, lifestyle, or market conditions. Regularly review and adjust your financial plan accordingly.
Seek Professional Advice: If you're unsure about any aspect of financial freedom planning, consider seeking advice from a financial professional who can provide personalized guidance based on your individual circumstances and goals.
Financial freedom is about more than just money; it's about empowerment, flexibility, and peace of mind. It's the ability to live life on your own terms, free from financial worries. By adopting sound financial habits, setting clear goals, and making wise decisions, anyone can work towards achieving financial freedom and creating a brighter future for themselves and their loved ones.
By following these steps, you can get a grasp on the amount of money you will need to achieve financial freedom and create a plan to work towards it. Remember that achieving financial freedom is a journey that requires discipline, patience, and continuous monitoring and adjustment.
Your Genistar representative can help you with a comprehensive and complimentary financial plan which can show you how to move closer to your idea of financial freedom.
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The information provided on this website is for educational or informational purposes only. Please refer to our legal disclaimer for further information.
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