What is Financial Freedom?
This article discussed what, why and how to achieve this mystical target of 'financial freedom'. I hope that the reader will gain an insight into my motivation and to gain an understanding of what efforts are needed for 'financial freedom'. This article follow on from a much earlier article: Why Get Rich?
The Financial Freedom Need
In Britain many people worry about money. It is thought that as much as 40% of British adults have angst about their finances. Financial matters are one of the biggest causes of arguments between couples. Given that all this is true I find it hard to believe that there isn't a single person out there that does not want to remove all financial based causes of stress and worry. To strive for financial freedom should be everyone's goal. But what exactly is financial freedom, why do I want it and how do you achieve it?Financial Freedom: The What and Why
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For me, financial freedom means that my level of income generating wealth AND CASH should be at a level where I never have to work again but also that my spending habits should not be constrained in anyway.
As you can see there are several elements to financial freedom and I shall briefly discuss each one below:
Wealth and Cash: You should have enough income generating wealth built up in businesses, rental accommodation, dividend earning stocks, such that if you would wish to, you would never have to work again. (Disclaimer: this doesn't actually mean that you shouldn't actually work again, just that you COULD choose not to). I specify that you should have cash as well. This is because not all your wealth is as liquid as cash, but your spending needs should not be hampered by this. The question is: what level of wealth and cash is required for this? That is a very personal number. It will depend on where you are living, how long you think that you will live for (post retirement), what you want to pass on, what your spending habits will be. There are many pension calculators on the web that should give you a decent idea about how much you will need.
For your interest. I have worked out that if I want to reach financial freedom by 55, whereby I have about £80,000 to live on per year for the rest of my life. If I want to achieve this I am going to need to have build up a pot of wealth worth about £3,000,000 in today's money. Of course this is a substantial sum. No one said financial freedom was easy. This is why so few people truly achieve it. It takes grit and determination.
Spending Habits: Having about £80,000 a year to spend is a large amount. This amount is especially large considering that I hope to have no debts at this point. The idea is that the amount is large enough so that I can do whatever makes me happy. For example, if I want to see the Great Barrier Reef at the weekend then I want to be able to go and not be heavily constrained by finances. Of course these spending habits will have to be slightly controlled. It wouldn't serve me well to buy a Ferrari every week. My spending habits require only that I can be happy, not stupid.
How to Achieve Financial Freedom
Now that you've decided that you want financial freedom (who wouldn't?!), there is just the simple task of achieving it. Ideally you want to check out the Get Rich Plan. The basic ideas are as follows in several steps:
1. Get a good education
2. Get a well paid job with prospects
4. Eliminate Debt
5. Save 20%-50% of your net income
8. Enjoy Life
9. Time and Patience
Seems simple enough! In fact the most important step is understanding number 9. Getting rich does not happen quickly. It takes decades of patience. I wish you all luck along the Multimillionaire Road to Financial Freedom.
What does financial freedom mean to you. Please write in the comments box below.
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