Steps To Financial Freedom
Financial Freedom
Unless you are born into wealth, inherit it or are lucky enough to win the lottery, unfortunately you will have to earn your way to Financial Freedom. If you are one of the people who need to earn your wealth, you will first have to make the simple decision whether or not to go for it! The majority of people do not make this decision and as a result go through life in debt or claiming poverty. They then spend the rest of their days moaning that they never had any chances. You yourself have that decision to make now and if you choose not to take it, then you have no excuse moaning the rest of your life.
The bottom line is very simple. Choosing the road to wealth will take time, commitment and work but the end result is worth it. Choosing not to make a decision and therefore accepting your lot in life will inevitably result in you never changing your position or circumstances.
What is ‘Financial Freedom’
This is something you should know if you are setting your sights on becoming it! Financial Freedom is when you can live the lifestyle you wish to lead and having enough money or income, without having to work for it. Years ago, most people could achieve Financial Freedom by having between £500,000 and £1,000,000 but as the cost of living increases and the interest rates on savings lower, the desired figure increases too. With a set amount of money in the bank, it is possible to live off the interest alone and this one thing means you are free to live each day as you please without having to worry about going to work. When you have achieved this, you can class yourself as having ‘Financial Freedom’!
Having Financial Freedom not only allows you to live the lifestyle you wish to live but it helps you achieve your dreams. Most people have dreams but the majority of dreams cost money. Never be afraid to dream and never be afraid to aspire to achieve them through Financial Freedom!
Knowing Your Own Financial Position
Most people go through life dreaming about wealth, dreaming about making more money and dreaming of one day becoming very wealthy. However, the reason why most people do not achieve their dreams simply comes down to them not really even knowing their own financial position. If you want to become financially independent and begin to grow your wealth, you really owe it to yourself to be 100% percent clear about where you stand financially and what your current financial position is! It doesn’t take long to do a quick assessment of your current financial position and it will pay dividends in your own progression.
How Do You Assess Your Own Financial Position
Simply answering a few quick questions will provide you with a clear picture regarding your financial position.
How Much Do You Own?
We are all guilty of brushing our debts to one side and trying to forget about them but the reality is, they don’t go away! As a result of this behaviour, we actually lose sight of just how much we owe, yet keep making those payments each month. The first step you need to take is addressing your debt, confronting it and making a list of everything you owe. Yes, write out a list and the amounts you owe and be sure to list everything!
Once you have made a list of how much you owe, make a list of all your assets. Don’t forget, an asset is only something that makes you money! Many people are mistaken when it comes to listing their assets and they add their house and car to the list but unless these items are actually paid for in full or are making you money, they are not really assets!
Ask yourself this question. If you sold off everything you owned and used that money to pay of your debts, would you have enough to pay off your debt in full or would you be short? If you had enough money to pay off your bills, how much would you have spare and if you didn’t have enough, how much would you be short?
Prioritise Paying Off Your Debt
Believe me, I know what it is like to have debts and I know just how hard it is to consolidate those debts and pay them off quickly. This is why I write this section with care because it is much easier said than done and I don’t want to sound patronising. Debt is a killer and if you want to achieve Financial Freedom, the first thing you need to become is ‘debt free’. You really need to make a list of all your debts and put the ones to which you pay the highest amount of interest first. The first thing you need to ensure is to pay off the ‘highest interest’ debts, as soon as you can.
How Much Will Your ‘Financially Free’ Figure Be
The big question is how much money would you need to achieve ‘Financial Freedom’? The answer is simply that every individual person’s figure is different and that is simply because everyone’s circumstances are different. Acquiring ‘Financial Freedom may not mean you are cash rich but what it does mean is that you will have enough money to ensure you never have to work again!
Calculating Your Financial Freedom Figure
Although this calculation may not be the exact amount you will need, it does provide you with a figure that is pretty realistic.
The first thing you need to do is to calculate a gross amount of money that you would require to live on each year and this could be reflected on your existing salary. If you are living and managing quite comfortably on your current wage, then use this figure as your guide. If there are two of you living in the same household and both of you are working, then you should combine each salary to reach your gross amount. Please understand that when you are working out your ‘Financial Freedom Figure’ you need to be aiming at an amount of money that you could live on comfortably and that would allow you to pay your bills, enjoy a few luxuries such as holidays, shopping and eating out every now and again but it is not an amount that will allow you to live excessively!
Ok, so you have now established your ‘Gross Annual amount of money you would need to earn to live a comfortable lifestyle (but not excessive!). Your next step is to find out what your overall ‘Financial Freedom Figure’ will be! Your overall ‘Financial Freedom Figure’ will be the total amount of money you will need in the bank to provide you with your ‘Gross’ annual amount of money you need to live on each year.
The simple way to establish this overall ‘Financial Freedom Figure’ is to do a few maths!
The maths are pretty straight forward but they do rely on how much interest you are receiving from the bank on your savings. Many years ago is was much easier to do because the interest rates from the banks were all pretty good and the average interest rates were all pretty much the same. However, due to the recent economic crisis and recession, the banks interest rates are much lower and as a result, you may find that your overall ‘Financial Freedom Figure’ is a little higher than it would have been in previous years! I have listed below an example of the same ‘Gross Annual Amount’ but with differing interest rates.
Let’s assume that your ‘Gross Annual Amount’ (the gross sum of money you need to earn each year to live a comfortable lifestyle) is £25,000.
What you would need to do is multiple this Gross figure of £25,000 by the relevant numbers below to find your overall ‘Financial Freedom Figure’. This is determined by the percentage of interest your saving will be receiving from your bank.
I have worked out the overall ‘Financial Freedom Figure’ on 5 different interest rates from 1%-5%. On 1%, you will need £2,500,000 this is calculated by multiplying your gross figure of £25,000 by 100. Why 100? Well, if you deposit £2,500,000 in the bank at a 1% interest rate, 100/1 = 100, you will receive £25,000 interest per year. The same procedure is used for each percentage rate:
1% = 25,000 x 100 = £2,500,000
2% = 25,000 x 50 = £1,250,000
3% = 25,000 x 33.3 = £832,500
4% = 25,000 x 25 = £625,000
5% = 25,000 x 20 = £500,000
As you can see from the list above, it just shows how much difference in the amount of money you need for your ‘Financial Freedom Figure’ fluctuates on the rate of interest your receive. This is why you need to be savvy and ensure you are getting the best rates of interest possible, especially the more money you have in the bank!
Try the exercise yourself today and calculate how much your ‘Overall Financial Freedom Figure’ would be. Do not be disheartened if the figures seem a little high because these figures are achievable (especially if you take advantage of our FREE service and Members Area) and being positive is how you will achieve Financial Freedom. It simply means you now need to begin to set yourself a few little goals!