financial freedom财富自由

Remember that financial freedom will look different (and be defined

differently) for every individual. A few of the many factors that impact

financial freedom include your individual measurement of quality of life,

income, and the area you live in. While one person’s version of financial

freedom may include paying off their student loans, another’s may include

becoming a high-net-worth individual.

How Does Financial Freedom Work?

The process of working toward financial freedom can be broken down into a

few key steps.

.

Define what financial freedom means to you: If you had all the

money in the world, how would you spend your days? What would

you want to accomplish in life?

.

Figure out how much money you need to afford your version of

financial freedom: Calculate how much money you need to save in

order to fund the lifestyle outlined in the previous step. How much

money you’ll need to have saved depends on your expected annual

expenses.

.

Save as much as you can: When you reach financial freedom, you

are no longer living paycheck to paycheck, but instead have enough

funds to last and protect you in the event of an emergency. By

continuing to save as much as you can, you will be one step closer to

your savings goals, no matter what those may be.

.

Live below your means and save the rest: If you are able to,

spending less than you earn is recommended for reaching financial

freedom.

How Much Money Do I Need to Reach Financial Freedom?

As mentioned, there is no one amount of money that every person should

reach for in order to achieve financial freedom. The amount will vary

depending on the individual and their lifestyle goals.

Generally, though, the amount of money you need to reach financial

freedom depends on your expected annual expenses, as well as your

annual income. The multiply-by-25 rule is a helpful guide individuals use to

calculate how much they should save for retirement, and it can be applied to

financial freedom, as well:

•

Financial freedom (quantity) = expected annual income x 25

Let’s say you need to have $50,000 a year to afford your dream lifestyle. In

this case, your financial freedom amount would be $1.25 million ($50,000 x

25 = $1.25 million).

Ideally, though, in addition to saving regularly from your salary, you would

increase the amount of money you save through things like 401(k) employer

matches, compound interest on investments, and other sources of passive

income.

Key Takeaways

•

•

•

Financial freedom means having enough passive income from

investments, savings, and other assets to support your dream

lifestyle.

It’s important to define what financial freedom means to you, figure

out how much money you need to afford that lifestyle, and then try to

live below your means and save the rest.

One way to quantify financial freedom is to multiply your expected

annual expenses by 25, through the multiply-by-25 rule.