Your financial freedom number is the best way to ensure your future freedom.

Sadly, I realized this after decades of focusing on one-month goals instead of long-term goals.

To make myself feel worse :-) and hopefully inspire you to get started, I went ahead and did the math to see where I could have been right now.

To enjoy life on 90k a year, I'd need 1.5 million in an account earning 6% per year. That would cover my expenses. You can play with the numbers, higher returns, higher investments, etc.

Here are a few ways I could have achieved my financial freedom number by now:

• $600 monthly invested in S&P index fund for 30 years = Now $1,506,611.18
• $10k invested in Tesla IPO in 2010 = Now 1.2 Million
• $5k invested in Bitcoin in 2015 = Now 2 Million

No matter your resources or investment style, know your freedom number. Then, get started now!

Step 1: Define Your Freedom Number 

Your "freedom number" is the money needed to live off passive income forever. Once you reach this number, you can live without worrying about running out of money.

To calculate your freedom number, start by determining your financial freedom baseline. This is the annual cost of the lifestyle you want to live. It will vary depending on your personal goals. For some, it might mean driving a luxury car and traveling frequently. For others, it could be a simpler life free of financial stress.

A: Estimate Your Lifestyle Costs 

Use the following categories as a starting point to calculate your yearly living expenses. Adjust the numbers based on your preferences and circumstances.

1. Housing

For example, if you like a vibrant city, like Miami or London, you might pay about $30k a year for a one-bedroom apartment. If your house is going to be paid off and you want to stay put, you might be looking at $5k yearly for expenses.

2. Transportation

Dreaming of a luxury car like a Porsche 911? Car payments, insurance, fuel, and maintenance could cost $24k a year. Looking forward to living in a walkable area and keeping a lower-cost reliable car, then your total transportation costs may only be $5k per year.

3. Travel

Three mid-range vacations per year might cost $5,000. If you plan to bring someone along, double that to $10,000.

4. Utilities

Basic utilities (electricity, heating, water, and internet) for a an apartment or small house may add up to $3,000 annually.

5. Food

A mix of dining out and home-cooked meals can be managed for about $5,000 per year per person.

6. Health Insurance

In the U.S., a mid-level health insurance plan typically costs around $2,500 annually.

7. Leisure and Entertainment

Gym memberships, nights out, and other recreational activities might run about $4k a year.

Your Total:

Plug in the numbers based on your priorities to get your yearly freedom number. A typical range for an individual to live a comfortable lifestyle in the U.S. is $50k to $100k per year.

B: Calculate Your Freedom Number

Once you know your yearly expenses, use one of these formulas to find your freedom number. The first formula is easier for some to understand. The second lets you adjust the % for different return rates.

Each rule assumes the same rate of return as the withdrawal rate. This allows you to live off your investments indefinitely without depleting your principal.

The Rule of 25 Formula: Freedom Figure = Annual Expenses × 25

This rule assumes a 4% interest and withdrawal rate. It lets you live off your investments indefinitely without depleting your principal.

Using the example of $75k yearly expenses:

$75k × 25 = $1,875,000

You would need nearly $1.9 million invested. It would generate $75k in passive income to cover your yearly expenses forever.

The 6% Rate of Return Formula: Freedom Figure = Annual Expenses Divided by 0.06

The rule assumes a 6% rate of return and can be easily adjusted higher or lower based on your investment style.

Using the example of $75K yearly expenses:

$75k divided by 0.06 = $1,250,000

Step 2: Build Your Financial Freedom Plan

Now that you know your target, it’s time to create a plan to reach it. Here’s how:

1. Start Saving and Investing

The sooner you start saving, the easier it will be to reach your freedom number. A good rule of thumb is to save 20-30% of your income. Put a small percentage into savings for emergencies and luxuries and invest the rest. If you don't want to actively manage your investments, research options. Consider mutual funds, low-cost index funds, or other diversified investments.

2. Leverage Compound Growth

You've heard me talk about this before and you KNOW how important compounding is! Conservative stock market investing yields average annual returns of 6-8% long-term. They can be much higher, too. Thanks to compounding, even modest contributions grow significantly over time.

3. Avoid Lifestyle Inflation

We all have a hard time resisting spending that extra money on life upgrades! Remember, a $60k car is a depreciating asset. As your income increases, resist the urge to drastically increase your spending. Be careful with your lifestyle upgrades. Use most extra money to invest.

Step 3: Create Passive Income Streams

Investments alone aren't the only way to generate passive income. Here are additional options:

• Rental Properties: Owning real estate that generates positive cash flow is a tried-and-true strategy.
• Dividend Stocks: Invest in companies that distribute a portion of their earnings to shareholders.
• Businesses: Start or invest in scalable businesses that do not require daily involvement.

The key is to create multiple income streams that support your lifestyle without constant effort from you.

Step 4: Adopt a Long-Term Mindset

Markets fluctuate, and setbacks happen. A long-term approach keeps you on track during downturns and life's surprises. Keep these principles in mind:

• Stay Invested: Historically, no one who has held an S&P 500 index fund for 20+ years has lost money.
• Rebalance Regularly: Adjust your portfolio to maintain your target asset mix as your goals change over time.
• Stay Patient: Building wealth takes time. Trust the process and stay disciplined.

Step 5: Maintain Your Financial Freedom

After achieving financial freedom, aim to sustain it. Live within your means and protect your investments. Think of your wealth as a golden goose that lays eggs (passive income) for you to live on. As long as you only spend the eggs and leave the goose (principal) untouched, your financial freedom is always secure.

You Can Do This! Start now

 Financial freedom isn’t just for the wealthy. It's everyone's birthright, and anyone willing to plan, save, and invest wisely can achieve it. Know your freedom number. Take steps to achieve it. You can then design a life free from financial stress and full of possibilities!

Share this with someone you love who's ready for financial freedom!

Kristen