What’s Your Financial Freedom Number?
What’s your number?
This is one of the most common questions discussed amongst entrepreneurs.
In simple terms it means ‘what is the amount of money you need so you feel comfortable to stop what you are doing’. As in, what net wealth are you trying to achieve in doing what you’re doing.
The number most often thrown around is $10million.
But why is this the most common number? Like most things, we heard it from someone else and it sounded like a good number to strive for.
Most of us like simple, round numbers and someone probably thought $1million sounded too little and $100million seemed too much, so $10million sounded just right! In most cases, there’s very little real math behind it.
I love asking people this question just to see what their number is and how they justify it, or if they’ve even thought about it.
What’s apparent in most cases however, is very few people have really thought it out.
Aside from this lack of clarity, one of the other things common things that tends to occur is the number keeps changing as one gets closer to their goal, or worse people aren’t even doing anything about getting to their number.
If people were really connected with their ‘number’, and understood what it would provide them with, they may be living a completely different life.
Many of us use this number to justify why we keep grinding away, and to tolerate the day to day crap that we have to deal with. This seems easier than truly living an intentional life.
“Many of us think earning more money will automatically make us wealthier.”
But this is not proven to be the case. Rather, it’s a combination of what we earn and the percentage of this that we save that really counts. This may sound like common sense, but considering the way many of us act, it is clear that most of us do not have a proper understanding of the relationship between what we save and our total wealth (as opposed to simply what we earn).
Looking at the math may help us to think differently about our own ‘numbers’.
By way of example, someone earning $100,000 a year (after tax) and managing their expenses well so that they are only spending $70,000 a year, will achieve financial freedom before someone who is on double the income ($200,000 a year), and spends $170,000 a year. Even though they are saving the same amount each year, because the second person has become accustomed to living on $170k a year they will need $4.1 million net wealth to produce the desired income of $170k. This would take 37 years to achieve!
Compare this to the first person they only require a portfolio of $1.7 million which will take 28 years to achieve. Imagine the good times they are having with those extra 9 free years!
We need to start seeing savings as something awesome, not a burden.
Saving to me means empowerment. It means that you are living within your means and your own terms. You are giving your future self many options.
There is also plenty of evidence that more consumption in our lives actually has a negative effect, so you will get a double positive by changing your spending/saving habits.
Being financially free does not mean you will retire.
Seriously, I have already had two retirements in my short life and after six months you get pretty bored and want to do something again.
What being financially free means is that you will have choice about what you want to do, when you want to do it and how long for.
No longer will you be able to use money as an excuse on why you are or aren’t doing something.
You can actually start living your desired life.
Imagine what you can do once you become financially free.
- Have a bucket list? Go attack it
- Extremely passionate about a particular charity? Go help them
- Want to start a business? Go for it
- What to go and learn a new skill? Start learning
This is only the beginning though. Once you know this number you need to start taking action to get there and see if you can beat the recommend years by changing your habits, increasing your income and making better investments.
It’s a magical feeling once you get there.
If getting on the path towards financial freedom is important to you this year, take advantage of our FREE Strategy Session to get you started.
Disclaimer: all information contained within this article is of a general nature. It should not be relied upon when making financial decisions. Please consult a professional financial advisor or planner (like us!) before acting.