WHAT IS YOUR FREEDOM NUMBER?
Financial Freedom is ultimately about giving yourself time freedom and creating an abundance of choice in your life. It is the ability to do what you want, when you want. Before reaching financial freedom you can be stressed about paying the bills, making mortgage payments, working overtime, missing important events with your family, and having limited amounts of time to do what you really love.
When you are financially free, you have the liberty to decide how to use our most precious, non-renewable resource – time. You can choose to work or not, to spend more time with your family and friends, volunteer for amazing causes, travel, explore new interests, develop new skills, further your education, or serve others by using your talents. We all have different priorities and lifestyle values. Financial freedom gives you the ability and choice to fully live out your values.
How can we get there?
1. AWARENESS – Get a clear picture of where you are at today.
Where do you current stand financially? It is good to have a complete picture of your net worth. This is your assets minus your liabilities. For most people this represents the property and possessions you own minus any debts you have.
What is your debt picture like? Do you know how much you owe? What are your interest rates and can you find lower ones? Most credit cards charge an arm and a leg to borrow money, around 20%. There are many other options out there. Discuss your affairs with a good financial or debt consultant. How about your housing payments? Are there ways to pay off your mortgage sooner? Even by paying a weekly mortgage (verses a monthly one) can lop years off of your payments.
How much are you spending? It is good to notice what you spend your money on each month and in what categories (clothing; food; car; home – mortgage, strata, taxes, utilities, internet, etc; and so forth). When you have a clear picture of where your money is going, you can be more intentional to make sure it ultimately goes to where you want it to! And even better than getting a monthly picture, is to go through your statements for an entire year. This can take a bit of time if you don’t have a current system in place, and it will be worth it! A one-year overview gives you a much more accurate assessment of your expenses, as we tend to spend more during certain months – Christmas, vacation time, tax time; and unless you are on equal payments for everything, you will find fluctuations in your utilities, medical and dental bills.
How much are you keeping? In the end, it is not about how much money you make, it’s about how much you keep – your after tax money. This is the money you actually have to work with.
Do you have other assets or investments that are making you money? This is an area to focus on, as it truly paves the way to financial independence and freedom.
2. YOUR VISION / YOUR WHY
What does your freedom mean to you? Why would you love to become financially free? What will your financial independence give you that you don’t already have right now? What would it feel like to know that your home is completely paid for? How about taking care of your children’s education, or your aging parents? Do you want to go with friends or take your family on a major trip around the world? Are there causes you would like to contribute to? Interests or talents would you like to develop? New businesses you want to build? What would you truly love to do with your time?
Your dreams and financial freedom vision will be unique to you. It will require discipline, focus, endurance, consistency, you will likely have to forego some momentary pleasures, and it will be worth it! When you are sacrificing today, knowing why you are doing something will provide you with a greater purpose. The beginning of your freedom journey is the most difficult part. Momentum will eventually take over and you will see the fruits of what you have sown. Your beginning task is to be clear about what you want and what financial freedom would truly mean for you and your life.
3. TRIM THE FAT
With greater awareness of how you spend money (step 1), you can now cut out or trim down on any unnecessary expenses. Maybe you don’t need that Starbucks every day. Perhaps you can eliminate the payment for the gym membership you’ve never yet used but have been paying for the last three years. Maybe paying the occasional drop-in fee will suit you better and cost you less in the long run. You can downgrade or eliminate your cable package. These are all personal choices. While you still want to enjoy your life, by eliminating unnecessary expenses now, you can create the freedom and future you want. Cutting down on some of the extras, also increases your enjoyment for the times you do, for example, savor your Starbucks or have a night out on the town. Trimming the fat allows you to be intentional and gets you closer to living the life you genuinely want.
4. DESIGN YOUR FUTURE
This involves outlining the vision for your life, your lifestyle, and what is truly important to you. Designing your future is meant to stretch your mind, to put some numbers to paper, and think in the realm of possibilities. You may discover that it’s time to pull up your sleeves, create a plan, and get to work. You may also find that you are much closer than you think to making your freedom dream a reality.
Project your age. What age do you expect to live until? Obviously no one will know this with certainty. However, projecting your age can give you a target. With today’s standard of living and making good lifestyle choices, it is not unrealistic to expect to live to be 100 or more. How many more years do you have left to live your life?
What do you need in the years you will live? What type of lifestyle would you like to have? What will be some of your big ticket items? Kids in college, world travels, upsizing or downsizing your home, different vehicles …
Fill in your years and include a progression of lifestyle / inflation. The historical average rate of inflation in Canada is less than 3% and in the U.S. it is less than 2%. Calculate your costs of living going up at least these percentages for each year you live. You can gain a clearer picture of what you will need either in terms of your net worth or passive income.
5. INCREASE YOUR PASSIVE INCOME
Passive income is making money while you sleep and is a strategy that all of the wealthy use. Passive income derives from income generating assets (IGA). This is when you are no longer trading your time for money. Your assets are working for you. A few examples of IGA’s are income from rental properties, investments, portfolio income, or passive income from owing businesses. Once you know that your passive income will sustain you, keep up to inflation and your lifestyle needs, you are free.
What is your passive income number?
6. BE INTENTIONAL TO MAKE IT HAPPEN!
Work on a strategy that is right for you. In what ways can you save in expenses and taxes, or increase your investment in income generating assets? The road ahead will require planning, awareness, strategy and persistence. If you have gone through the first few steps you now have a clearer vision and a goal to strive for. By doing this you will already be ahead of the majority.
7. ENJOY EVERY STEP OF THE JOURNEY!
While you are planning for the future, it is essential that you fully enjoy the present! For many of us, our financial independence journey will not happen overnight. Maximize your happiness by living fully in the present, enjoy the people you are around, appreciate what you already have, and love every day of this wonderful life we’ve been given!