What's Your Financial Freedom Number? Start With the Life You Want
Before you decide how much is enough, decide what you want your money to make possible.
If money weren't making the decision, what would you do differently?
Would you leave a stressful career? Work three days instead of five? Start your own business? Move somewhere you've always wanted to live? Travel more? Help your family? Or simply wake up knowing that going to work was a choice rather than a financial necessity?
We often think financial freedom begins with a number.
I think it begins with a vision.
Before You Calculate Your Financial Freedom Number, Define the Freedom
Your financial freedom number is a personal estimate of the financial resources you may need to support the lifestyle and choices you want. Unlike a one-size-fits-all savings goal, your number should reflect your expenses, goals, income sources and vision for the future.
Money is the resource; choice is the outcome.
Take some time to reflect on what financial freedom could mean to you. What choices might you make if money weren't the primary consideration?
By digging into that potential why you can then envision the opportunities and whether making a change is worth it.
Understanding your “why” can help you envision the opportunities you're actually working toward.
What would be your purpose and intent for that future? Dream and document what that could look and feel like.
Your financial freedom number should fund the life you want—not someone else's definition of success.
Financial Freedom Doesn't Start at the Finish Line
Building financial freedom doesn't begin when you finally reach your target number. It begins with the financial decisions you're making today.
Have you been thinking that if I pay off my debt, get my investment accounts kickstarted that you are now automatically financially free?
Yes, paying off high-interest debt does free up monthly cash flow.
And yes, building up your emergency savings can reduce your dependence on credit.
Plus increasing your savings rate definitely creates more future resources.
And yes when you invest consistently that will allow time and compounding to work to your benefit.
And always reducing your fixed expenses means you need less income to support your lifestyle.
And building multiple resources means you become less dependent on one paycheck.
Because every dollar you no longer owe and every dollar you intentionally save or invest can increase your future flexibility.
What's Your Financial Freedom Number?
Your freedom number is your own, and it’s unique based on what choices you want to make.
So to figure out your financial freedom number, consider what you're trying to fund.
Document and consider the following financial data:
Essential living expenses
Housing
Healthcare
Transportation
Travel
Hobbies and entertainment
Family support
Taxes
Giving
Other lifestyle goals
Do you have all of those compiled? Now ask yourself:
What would it cost each year to support the life I am imagining?
This is a starting estimate—not a prediction of every dollar you'll ever spend. The goal is to estimate the annual cost of your desired lifestyle so you can begin determining what financial resources may be needed to support it.
And it gives you some ideas on what needs to change to make this number work for you in the future.
You may come across formulas online for calculating a financial independence number, but no single formula can account for everyone's lifestyle, taxes, healthcare needs, income sources, timeline or goals.
Your Financial Freedom Number Doesn't Have to Fund Everything
Your freedom does not all have to come from your current income either.
Your desired lifestyle might be funded by a combination of:
Investments + retirement accounts + Social Security + pension + part-time work + business income + other savings/resources.
If you're considering leaving corporate America, you may not need enough money today to fund the rest of your life. Instead, you may need sufficient resources to bridge the transition until other income sources become available.
What Can Change Your Financial Freedom Number?
I wish it was easy, you find your financial freedom number and it never changes.
But guess what? Life happens.
Prepare yourself. Your financial freedom number is not static.
Your financial freedom number may change because of inflation, healthcare costs, taxes, investment performance, changes in income, lifestyle decisions and unexpected expenses.
Your financial freedom number is a planning tool—not a guarantee.
And that's why your roadmap needs to be reviewed periodically.
Use Your Financial Roadmap to Close the Gap
Once you know what you're trying to fund, your Financial Roadmap helps you determine how to get there.
Once you've identified what financial freedom might look like, your Financial Roadmap can help you assess the gap between where you are today and where you'd like to be.
Assess if you have any gaps using my 7-Step Financial Planning Roadmap:
Define your goals. What would greater financial independence allow you to do?
Know Your Numbers. Understand income, expenses, debt, savings, investments and net worth.
Spend With Intention. The dreaded budget! This is where you assess the gap between what you earn and what you spend which creates opportunities to save, invest and build flexibility.
Build Your Safety Net. Emergency savings can help prevent an unexpected expense from becoming a financial crisis.
Protect Yourself. Insurance is an essential part of financial planning because it protects the assets and wealth you've worked so hard to build.
Invest for Your Future. You're converting money earned today into resources your future self can use.
Review Your Progress. Your goals—and your definition of financial independence—may change.
What Does "Enough" Look Like for You?
Often social media and financial gurus will define what being wealthy means (i.e. the 1 percenters).
But the beauty of financial freedom is you get to decide what that truly means for you.
Give yourself 15-minutes with a cup of coffee or tea, a quiet space in your house or coffee shop and reflect:
Imagine you've reached a point where your finances give you significantly more flexibility. What changes?
Ask yourself:
Would I still work?
Would I work differently?
Where would I live?
How would I spend an ordinary Tuesday?
Who would get more of my time?
What would I finally try?
When would I like work to become optional?
Then continue pondering with:
Put your life behind the number before you put a number behind the life.
Your Number Isn't the Goal—Choice Is
Your financial freedom number is not a trophy you're trying to collect.
It's a tool for understanding what it might take to create the life and choices you want.
Getting out of debt can create choices. Building an emergency savings can create choices. Increasing your savings rate can create choices. Investing consistently can create choices.
You don't have to wait until you have reached complete financial independence to experience greater financial freedom.
Every step that strengthens your financial position has the potential to create another choice.
Your financial freedom number isn't the destination. It's a tool for helping you understand what it may take to create more choices in your future.
So instead of asking only: “What's my number?”
Ask: “What do I want that number to make possible?”
Wondering how financial independence fits into your retirement goals? During a FREE 45-minute Retirement Clarity Call, we'll explore where you are today, what greater financial freedom could mean for you, and the next steps toward the future you envision.
Want to explore the idea of financial independence further? Read Financial Independence Isn't About Being Rich—It's About Having Choices to discover how greater financial strength can create more options for your career, time, lifestyle and retirement.
If you have enjoyed this article, follow me on social media @lordfinancialcoaching.
