Financial freedom can mean different things to different people. I believe there are 3 different types of financial milestones that one should aim for along the journey of financial freedom, namely; financial Security, financial independence and financial freedom.
Financial security
This means you have enough passive income coming into your account to cover the basics, things like; food, rent and limited entertainment. Basically, if you lost your job you would be able to survive on the essentials with your passive income.
Financial independence
It means you have enough passive income to cover all your basic and non-basic expenses, things like; car repayments, bond repayments, entertainment and an overseas trip or two. Basically, if you had to stop working, you could continue living on your current lifestyle.
Financial freedom
This is where your passive income allows you to do anything you want at any time in your life. You can go to Fiji 6 times a year and ski at Switzerland’s most expensive resort. Essentially you have enough passive income that your wildest dreams are within reach. Buying planes, islands and even Aston Martins… Nothing is impossible.
Why people get stuck
Where most people get stuck is that they aim for financial freedom straight away. They say things like, if only I had 1 billion rand, then things would be so easy. They create an impossible to achieve goal and when they don’t reach this goal quickly, they give up and resort back to their jobs. Instead, we need to see the achievement of financial freedom as a journey through time and reaching certain milestones as we go along.
You don’t expect a baby to run on day one, and you can’t expect financial freedom to happen quickly either. When wanting to achieve a goal, like losing weight, you’ve got to break down the big goal, into smaller, actionable and achievable goals.
Calculate your financial freedom numbers
Looking at your current lifestyle and expenses, what would your financial security, financial independence and financial freedom monthly figure be?
To determine your financial security figure, take all your basic monthly expenses (i.e. not fancy dinners and extravagant clothing sprees, just the basics). Add them up and that is your financial security goal.
To determine your financial independence figure, take your financial security figure and add all the extravagant expenses (clothing, fancy dinners and maybe even a trip of two that you would like to do in a year). Take all these expenses and break it down into a monthly figure.
The financial freedom number is again a very personal matter. This is the number where you can do anything you want and never have to say no because of finances.
My personal dream would be to reach financial independence at 30, slow down with work and focus more on my relationships, passions and hobbies. After that, I will continue investing in cash flow assets and by 40 I would like to earn R200 000 per month from my asset base. Once I reach that figure (or the relevant comparable in 15 years’ time) I would have achieved my financial freedom figure.
It all starts with a goal, then a plan and then the execution and perseverance on your goal.
