How Much Money Will It
Take For YOU To Reach Financial
Freedom?
…..it may be a lot less than you
think!
Have you ever wondered just
how much money it would take, per annum, to become financially free? Would you like to know, because it might not
be as much as you think.
First of all, we must
identify the five levels of financial well-being. They are:-
- Financial Protection
- Financial Security
- Financial
Independence
- Financial Freedom
- Absolute Financial Freedom
The following exercise if
designed to help you figure out how much it will it take.
- How much will it take?
(Simply
guess what it will take to be financially secure, independent or free – the
first figure that comes to mind, for example, if I won $Xmillion in lotto, I
would….) $_______________
- How long will it take?
(once
again just guess for now as we will figure it out shortly.) $_____________________
Did you guess 1 million
dollars, 2 million dollars, 5 million dollars, 10 million dollars, or maybe
more? Keep on reading, I think you may
be surprised to find the answer.
First of all, let’s work out
how much money it would take to reach Financial
Protection.
1. FINANCIAL PROTECTION
The precise amount of money
you will require in liquid assets to be financially protected can be
established simply by reviewing your current monthly overheads (i.e., the
minimums). What does it take for you to
keep things together? Listed below are
the critical obligations that must be met to ensure that you and your family
are financially protected.
Item Current Cost
Per Month $
1. Mortgage payment/rent $__________
2. Electricity, Gas, Water
etc $__________
3. Transportation (inc.
petrol, car insurance) $__________
4. Food & Groceries $__________
5. Insurance
(disability/health etc) $__________
6. Private Superannuation
plan $__________
7. Total monthly income necessary for protection $__________
These are the basics
required to survive financially and does not include any credit card or debt
repayments.
GOAL
For example, “Bill &
Mary” calculate that they require $2000 per month and decide to have six months
worth set aside for their financial protection goal. You can choose 6 months or less, but six
months is the minimum suggested.
My Financial Protection goal is to save enough money to cover ____
months of basic overheads (line 7 X 6 months). TOTAL $_______
(Bill & Mary chose 6
months of protection at $2000 per month, that is $12,000 needed to set aside to
complete their first level in their five step plan.)
2. FINANCIAL SECURITY
The amount of money you will
need to achieve Financial Security is very simple to establish. Remember,
this means determining how much you need to be independent of the basic
necessities such as food, clothes and transport, (Financial Protection Figure).
Financial security is
achieved when your investments produce an income equal to your Financial
Protection Figure (basic necessities).
(1) Monthly income necessary
to achieve Financial Protection = $2000 (X 24 months) = $24,000.
GOAL
Bill & Mary’s is $2000
per month x 12 months = $24,000 total annual income required.
Your goal would be, your
monthly figure calculated to reach Financial Protection x 12 months, to achieve
the second level called Financial Security.
(1)Annual income needed from
investment to create Financial Security for life = $___________
3. FINANCIAL
INDEPENDENCE
The amount of money you will
need to achieve Financial Independence is very simple to establish. Remember, this means determining how much
money you need to be independent of work. How much money do you now earn annually? To duplicate your current lifestyle, it’s likely you will need to
duplicate your present monthly annual income.*
Example:
If you earn $200,000 a year
and invest $50,000, then the number you would actually need to be financially
independent is $150,000. Financial Independence is achieved when
your investments produce an income equal to your “work” income.
(1) Monthly income necessary
to support your current lifestyle = $4000 x 12 months + $48,000.
GOAL
Bill & Mary earn $48,000
gross and currently do not save, so the Financial Independence figure is
$48,000.
(2) Annual income needed
from investments to create Financial Independence for life for you is
$____________.
*If you are saving or
investing a substantial amount of your current income, then the amount of money
you need to duplicate your actual current lifestyle not counting investments is
less than your current or monthly/annual income. That is, if Bill and Mary are saving say
$10,000 out of a $48,000 salary, they would only need $38,000 per annum to be
financially independent, as this is what they require to meet their current
standard of living.
4. FINANCIAL FREEDOM
This goal is attained when
your investments provide enough income for you to live the lifestyle you desire
for the rest of your life without ever having to work again. Simply ask yourself, “What annual income
would I need to have the lifestyle I want?” The following steps are suggested:
In order to have financial freedom you would have not
only your current monthly income, but enough income to also purchase “other
things” you would like to have but cannot currently afford. Remember that this is not your ultimate
dream.
Establish how much these new
desires would cost per month and record on line 1.
- Calculate the additional monthly income needed
to meet these desires. (Remember, that this is not absolute financial
freedom.)
Example:
Item Cost Monthly Payment
Second Home in the country $350,000 $3,500
35-foot boat $150,000 $1,500
BMW Z3 $ 80,000 $1,000
Total additional monthly income needed = $6,000
- Record on line 2 the total amount of monthly
income you need for your current lifestyle, i.e., financial independence
(write on line 1).
- Add lines 1 and 2 to arrive at your total
monthly cost to achieve financial freedom.
Item Monthly Payment $ Cost $
Bill & Mary You
1.Total additional monthly
income needed: $6000 $________
2. Monthly amount already
need for + $4000 $________
Financial independence:
3. Total monthly income
necessary for =$10,000 $________
financial freedom: x 12 months x
12 months
=$120,000 =$________
Bill & Mary Line 1
- $6,000
2 - $4,000 ($48,000 pa for
financial independence x 12 months)
3 - $10,000
Bill & Mary
=$10,000 per month x 12 =
$120,000 $12,000
My
Goal $________
5. ABSOLUTE FINANCIAL FREEDOM
You have achieved Absolute Financial Freedom when your
investment income provides you with the certainty that you can do whatever you,
as much as you want, whenever you want, wherever you want, with whomever you
want, - without ever working again. Take
a moment to establish what you would really need to be absolutely financially
free by filling out this worksheet.
1.
List all the things you would have if you were absolutely
financially free. Specifically, review
your financial freedom list.
2.
A)
Rewrite the things you would still keep if you were
absolutely financially free. For
example, you have a 35-foot boat, but now you want a yacht. If you want to keep the boat, then write it
down, If not, then just write down the cost of the yacht.
B)
Now, add to your list all the new things you want
that are not on your financial freedom list.
C)
Establish how much each of these new desires would
cost per month and record on line 1.
Example
Item Cost Monthly
Payment
Keep 2nd home in
the country $350,000 $3,500
Replace boat with yacht $500,000 $5,000
Replace Mercedes with
Lamborghini $200,000 $2,000
Great
Barrier Reef
Island $7,000,000 $13,000
New Helicopter $171,595 $1,800
Total additional monthly income needed to be
Absolutely Financially Free = $23,350
3.
Record on line 2 the total amount of monthly income
you need for your current lifestyle, i.e., Financial Independence.
4.
Add Lines 1 and 2 to arrive at your total monthly
cost to achieve Absolute Financial Freedom. Multiply by 12 to find the yearly income you will need.
Bill & Mary You
1.
Total additional monthly income $25,350 $____________
needed:
2. Monthly amount already needed + $4,000 $____________
for Financial
Independence
:
3. Total monthly income necessary
For Absolute Financial Freedom: =$29,350 $____________
X
12 Months =$352,000 $____________
MY GOAL
ANNUAL INCOME needed to create
Absolute Financial Freedom =$352,000 $____________
Taken from “What I Didn’t Learn At School But Wish I
Had” by Jamie McIntyre. To get your FREE copy and FREE 6hr DVD with more
in depth strategies go to http://www.wealthinformation.com.au/dat-dvd.html