Financial freedom is a term that holds different meanings for different people.
For some, it may mean being debt-free and able to cover day-to-day expenses without worry.
For others, it could involve owning a house, early retirement, or having the financial flexibility to pursue passions and dreams.
What does Financial Freedom look like to you?
Delve into your definition of financial freedom and receive guidance on calculating the financial requirements for achieving it.
We focus on goals related to homeownership, debt freedom, and early retirement.
Remember, consulting with an accountant or financial advisor is recommended to tailor these concepts to your circumstances.
Defining Financial Freedom
Financial freedom can be having sufficient financial resources and flexibility to make choices without being limited by money.
It means having control over your finances and living the life you desire.
Whether it’s pursuing a fulfilling career, travelling the world, or dedicating time to personal passions.
To determine what financial freedom means to you, ask yourself the following questions:
- What are your financial aspirations? Define your long-term goals, such as homeownership, debt freedom, early retirement, or any others that resonate with you.
- What does financial security mean to you? Assess your desired level of financial security. Does it include having an emergency fund, adequate insurance coverage, and a comfortable retirement fund?
Calculating Your Financial Requirements
Once you understand your financial aspirations, you can calculate the required financial requirements. Let’s explore three common goals associated with financial freedom: homeownership, debt freedom, and early retirement.
If owning a house or multiple properties is part of your financial freedom vision, consider the following:
- Determine the type of property or properties you desire and the estimated investment.
- Assess the required down payment (typically 20% of the property value) and factor in associated expenses. Stamp duty, legal fees, and property inspections must be considered.
- Calculate mortgage repayments and determine a realistic timeframe for becoming a homeowner.
- Explore potential strategies, such as saving for a deposit, reducing expenses, or considering government assistance programs.
Freedom from debt is a significant step towards financial freedom. One that many Australians WANT but often cannot GET.
If your idea of financial freedom is travelling, however, think more about debt relief while you balance the cost of travel and paying off debt. Here are some tips on calculating your debt freedom requirements:
- List all your debts, including credit card debt, loans, and outstanding balances.
- Determine your current monthly debt repayments.
- Explore different debt repayment strategies to accelerate debt elimination, such as the snowball or avalanche. Can you pay off any debt in a lump sum?
- Create a repayment plan by allocating a specific amount of monthly money towards debt reduction.
- Monitor your progress and celebrate each milestone as you eliminate debt. You are one step closer to being financially free!
Early retirement is something many people want to achieve but little plan for. Many factors may impact you unexpectedly, but we have listed a few questions that may help you prepare as much as possible.
What lifestyle do you want to maintain? How many people would have to be supported? What costs will have to be covered? What about health expectations for later years? How do you maintain a consistent income? How often would you need to be paid out?
If you retire early, many years will need to be covered financially, which may be more expensive than this one. To calculate your early retirement requirements:
- Determine your desired retirement age and estimate your post-retirement annual expenses. Be sure to consider how living expenses may increase by that time.
- Assess your existing retirement savings, including superannuation and other investments.
- Calculate how much you can save annually to reach your retirement goal—factor in your investment portfolio, inflation, and any additional income streams.
- Consider passive income revenues that may assist in achieving your goals.
- Explore strategies such as salary sacrificing, maximising employer contributions, or seeking professional advice to optimise your retirement savings.
Financial Freedom Is A Highly Individualised Concept.
Defining your financial goals is like defining business goals. You must determine the requirements needed to achieve your goals.
By clarifying your aspirations and calculating the necessary steps, you can create a roadmap towards financial freedom.
Depending on your idea of financial freedom, saving money may not be the quickest way to achieve your long-term goals.
Remember, each person’s circumstances are unique. Seek guidance from an accountant or financial advisor to tailor these calculations to your situation.
Take control of your financial future and embark on the journey towards the life of freedom and choice you envision.