It’s easy to dream about a life where the alarm clock is not your master, where the rhythm of your day is not dictated by a job you need but may not love.
We long for a world where our time is purely our own, a life where we set the agenda, and our day is filled with activities that are solely by choice and that we truly enjoy.
And the foundation to be able to have this life is attaining financial freedom.
For the majority of people, not achieving financial freedom leaves them feeling like they’re failing.
Achieving financial freedom is more than just being rich. In this blog, I’ll share what I think it really means, how we can determine what income would make us financially free, and how our money mindset can be key to setting ourselves up for financial success.
What Does Financial Freedom Really Mean?
Financial freedom is different from being rich.
Being rich means being able to buy expensive material possessions.
Financial freedom is living the lifestyle you want without worrying about money. It means having enough passive income to cover your living expenses without necessarily needing to work. We can then work because we love it or not work because we choose not to.
In an ever-evolving world driven by digital innovations and the rise of the gig economy, this concept of financial freedom has become increasingly significant.
As the traditional paths of income and employment shift, the ability to create a reliable, independent source of ongoing income has become an essential aspect of modern life.
The key benefits of achieving financial freedom
Ultimately, achieving financial freedom is about having options, flexibility, and independence over how you spend your time. Financial freedom reduces money-related stress and allows you to live on your own terms.
- More free time and flexibility to pursue what you most love, including spending time with family, hobbies or interests that you want to pursue
- Reduced stress from not having to worry about money
- Ability to work because you want to, not because you have to
- Financial security, even during recessions or job loss
- Option to retire early or take mini-retirements
- Financial independence to make choices based on your values, not a paycheck
- Opportunity to give back and leave a legacy through philanthropy
How Much Money Do You Need to Reach Financial Freedom?
The first step on the path to financial freedom is determining your target number—the net worth you need to achieve your desired lifestyle without relying on a paycheck. This number is unique to your lifestyle, situation and goals.
To calculate your target number, think about your desired annual income. Be sure you have covered necessities like housing, transportation, food, utilities, and insurance. Then factor in your desired discretionary spending like travel, dining out, hobbies, and entertainment, and income for future upgrades and expenses that you may have later in life.
A common rule of thumb is to multiply your annual expenses by 12.5. This gives you the net worth needed to withdraw 8% annually to cover costs indefinitely. So, if your lifestyle requires $100,000 per year, your target number would be $1,250,000. If you want to be more conservative, you can calculate this based on a 4% return (or whichever rate of interest you are confident that you can generate through passive investments). For 4%, you would double the saved amount to $2,500,000.
I use a process of having three different levels of financial freedom.
The first level represents your necessary expenses being covered. When this happens, you are at level 1 financial freedom and will remain there for your lifetime, provided you look after the principal (or have professional assistance from a good financial advisor)
Level 2 means that you add some luxuries in.
And level 3 is the income that represents being able to afford your greatest life.
Everyone is different, so once you have worked out your desired annual incomes for the 3 types of financial freedom, you can decide which one you want to target (or it could be somewhere in between). Once you have done this, you will have completed the first step of knowing your financial freedom goal. It is now time to check if your habits are helping you achieve financial freedom!
Habits to Help You Achieve Financial Freedom
Money Mindset
A money mindset is a prevailing attitude about finances and how you make, spend, and save money. It's a set of beliefs and behaviours that shape your financial habits and outcomes and are unique to you.
Your money mindset is greatly influenced by your experiences and what you’ve learned about money growing up. For instance, if you grew up in a household where money was always tight, you might develop a scarcity mindset where you believe that there is never enough money. Or even if money wasn’t so tight, you may have unconsciously taken on someone’s prevailing belief of thoughts about money.’’
I remember once when my father remarked that money didn’t grow on trees. Not realising he had a lot to think about regarding money, I took it literally and believed that money was scarce—a belief that I took on well into adulthood before realising that my beliefs were causing my financial problems and that they weren’t true.
On the other hand, if you were taught and truly believe that all the money you need and want is available and is a tool to achieve your dreams and live a fulfilling life, you might develop an abundance mindset where you see endless possibilities for generating wealth.
Your mindset greatly impacts your financial decisions and, ultimately, your financial reality.
People with a positive (abundance) money mindset tend to feel confident about money, make informed financial decisions, and are more likely to achieve financial freedom. In contrast, those with a negative (scarcity) money mindset may feel stressed about money, struggle to make ends meet, and find it difficult to achieve their financial goals.
Understanding your money mindset is the first step towards making meaningful changes in your financial life.
This is especially important because many of the debilitating beliefs around money are hidden in our subconscious. They prevent us from achieving our dreams, and we may not even realise that they exist. By recognising and challenging your beliefs about money, you can shift your mindset and make decisions leading to financial freedom.
Adopting a Mindset of Expansion
A mindset of expansion, the belief that your abilities can be developed, is a key to financial freedom.
This mindset will help you remain firmly on your pathway to financial freedom despite external circumstances when others get caught up in worry and limitation.
Each challenge turns into an opportunity to grow, each apparent setback a lesson learned that propels you forward.
The beauty of an expansion mindset is that anyone can achieve financial freedom by consistently applying key practical steps that lead us there steadily at first and then exponentially.
It doesn’t need to be hard—don’t get me wrong, there will always be challenges—but your mindset will help you navigate them. With an expansion mindset, we can move more easily through the challenges.
Overcoming Financial Fear
Fear often lurks in the background of financial decisions. Fears of loss, making a mistake, and financial instability can lead to paralysing inaction or hasty decisions.
Moving beyond these fears is crucial on the road to financial freedom.
It begins by acknowledging your fears and understanding they are based on limiting thoughts that can be dispelled.
Yes, we have to learn as we go and be wise with financial decisions, but fears (false evidence appearing real) are just based on our thoughts and don’t need to stop us.
In other words, having an aligned mind is paramount when taking the necessary actions.
Align Your Life and Financial Goals
Your life goals and financial goals should align and support each other. Start by identifying your long and short-term goals in different areas of your life, such as career, relationships, health, personal growth, and lifestyle.
If you’re still discovering what those goals look like for you, read our article about Getting Clarity & Finding Your Purpose.
For many people, examples of short-term goals could include paying off credit card debt, going on a holiday, or saving for a down payment on a house. Long-term goals may include getting married, having children or upgrading your house.
But what if I told you that there was a better way?
Almost everyone thinks that budgeting for all of the above first is the best way to achieve financial freedom.
The problem with this is that all of these are expenditures, not savings for a future where we can enjoy a life lived by pure choice. Of course, all of the above are important; however, they should not be confused with being a part of creating financial freedom.
Whatever we prioritise in life is what we will grow the most in and get the most out of.
In other words, if we prioritise debt and expenditure toward goals that we have, they become habits, and we end up getting more of the same. However, if we prioritise saving toward financial freedom, this will have an increasing impact on our savings and earning potential and will help us become free financially instead of burdened.
Budgeting and Emergency Funds
So, shouldn't we discuss budgeting and emergency funds if we want to prioritise saving for financial freedom?
Many finance experts will discuss creating an emergency fund or a budget. While this is a good idea, this way of thinking leads to many people focusing on the wrong things when it comes to creating financial freedom.
If we take an honest look at the cold, hard facts, an overwhelming majority of people simply do not get to their true financial freedom goals and/or enjoy the lifestyle they dream about and truly desire.
The problem with an “emergency fund” is that, while it is an absolutely great idea to have money available should we need it, the mentality is still one of setting aside money to spend at a later time. In other words, it is still earmarked for spending rather than for building wealth for a future income and lifestyle. It is not ultimately aligned with the priority order we need to be successful in achieving financial freedom.
As much as anything else, financial freedom is a mentality or a way of looking at things.
Rather than an emergency fund, we could consider this money a base of savings that is used to develop a financial freedom foundation; however, if we absolutely need it, it will be available to us.
Build a Savings Foundation
A foundation of savings is important for many reasons. It is the base from which financial freedom is built.
It also creates stability and freedom from stress, as we will be assured that we can weather any storms that may come our way.
A foundation also helps us stay focused on our growth rather than fearing what may go wrong.
Building up a strong savings foundation also gives us greater confidence, and it both directly and indirectly affects our financial outlook and earning potential. In other words, the more we have as a base, the larger our mindset will get, and our goals and earning capacity can grow in line. In turn, we can save more, and it becomes an upward spiral to expanding our financial situation.
Many financial experts recommend saving 3-6 months' worth of living expenses in your emergency fund. This means adding up all your necessary monthly expenses like housing, transportation, food, utilities, etc. and multiplying that by 3-6.
If we instead make this a base of savings that we don’t tend to use but it’s there if we need it, we can use this principle while also maintaining the mindset of creating financial freedom.
This is a far more effective strategy than focusing on preparing for things going wrong. Either way, the money is there if we need it.
For example, if your monthly expenses are $3,000, you'd want at least $9,000-$18,000 saved in your savings fund. Having this cushion allows you to cover costs if you lose your job, face an unexpected medical bill, or experience other financial emergencies—while maintaining a mindset that you won’t need it and will most likely go towards your financial freedom dream.
Those with more volatile incomes, such as entrepreneurs or freelancers, may want to save even more—up to 12 months' worth of expenses or even more—to keep the business and the lives of their loved ones safe in the case of an adverse event or circumstance. The exact size depends on your financial situation and risk tolerance.
Start with a 3-month goal, then build up to 6-12 months (or even more) over time.
Just a few years ago, the possibility of this event occurred to me. For the first time in my life, the entire country I lived in went through a lockdown for several weeks. In the beginning, no one knew how long it would last or what would happen to businesses in the meantime (as we all know, many didn’t survive).
I became particularly thankful to be given the information I had been given from some wise financial professionals. I had saved over two years of living and business expenses in a savings account that I had ready access to. It had been earning interest for a number of years, and because it was there, I had no panic or fear about what would happen.
So, instead of feeling and getting desperate, I was able to focus on what opportunities could be created at that time. It turned out to be a very busy time for my company, and our revenue increased. The key was that I didn’t have the stress that many people had by creating the cushion to ride a time like this through. Thankfully, I didn’t need to use it. However, it was a very calming feeling to know it was there - one that allowed me to focus forward instead of panicking. Something that I could have easily done in its absence.
The 2 Worlds of Money
There is a lifestyle that we would all love to live.
Though it is different for each individual, knowing what this is for us and being inspired by it will allow us to powerfully move towards it.
In the earlier example, we discussed how much capital you would need to provide an ongoing passive income.
Knowing your desired income and the amount it will take to produce it will go a long way toward guiding you in the right direction.
With the right habits and understanding, you can achieve your goals, no matter how lofty, with the power of compounding interest, which will be mentioned shortly.
At the end of the day, a dollar we earn can go one of two ways– into what I call the world of accrual or into the world of spending. As the name suggests, accrual means it will be sent to grow and contribute to what will eventually achieve your financial freedom goal. If it is spent, then it is consumed and hence gone.
Understanding our priorities on financial freedom versus instant gratification is vital to our success. Of course, enjoying life along the way is important. However, if we also factor in the ultimate importance of our financial freedom, we can increase our steps towards both
Investing Wisely
Savings act as a stabiliser, keeping you positive, focused, and moving forward no matter what is happening. Instead of constantly worrying about financial upheavals, intelligent investing is your ticket to growing your wealth and achieving financial freedom.
By prioritising consistent savings and letting your savings accumulate, you create a strong foundation that will keep you centred amidst life's financial uncertainties.
Be dedicated to learning about wise ways to grow your money and finding professionals who have demonstrated winning ways to consistently and sustainably grow wealth that you can learn and seek advice from.
Investing is one of the most powerful ways to build long-term wealth and achieve financial freedom. The key is to start early and invest consistently over time, harnessing the power of compound interest. As Albert Einstein famously said, "Compound interest is the eighth wonder of the world." It continually builds exponentially.
When you invest money, it has the potential to grow through interest and capital gains. When the investment gains generate additional gains, that's compound interest at work. Given enough time, even small, regular investments can snowball into a large sum.
For example, investing just $100 monthly in an investment account earning 7% annually would grow to over $300,000 in 40 years. But waiting 10 years to start would produce only around $160,000 in the same time frame. The power of compounding creates a huge advantage for those who start investing early.
Some good investment vehicles for harnessing compound interest include:
- KiwiSaver: Tax-advantaged retirement accounts like KiwiSaver allow your money to grow tax-free until retirement. The earlier you start contributing, the more time your money has to compound. This method is particularly effective if you are employed and getting matching contributions. Business owners will need to evaluate the role KiwiSaver plays in their investment strategy.
- Index/Mutual funds: Low-cost index and mutual funds provide instant diversification and market returns over time. Investing regularly in index funds can create substantial wealth.
- Brokerage accounts: General investing accounts allow you to buy stocks, bonds, mutual funds and other assets to build a diversified portfolio. Time in the market is more valuable than timing the market.
- Property: Although a different type of vehicle than the above, property can provide significant returns if done with a balanced mindset.
If you are not confident in your investment strategy, you can find a good financial advisor who can assist you in finding the right tools for you.
The key is consistency. By investing a portion of your income regularly, such as starting with 10% and then increasing, you put your money to work for you and have upward pressure on your earning capacity. Over decades, compound interest reinvested dividends and increasing income can transform those small contributions into financial freedom.
Continuously Educate Yourself
Achieving financial freedom requires continuous learning and growth. The world of personal finance is constantly evolving, and it's crucial to stay up-to-date in order to make smart money decisions. Here are some ways to continuously educate yourself on the path to financial freedom:
Read Personal & Business Finance Books
Reading books is one of the best ways to expand your financial knowledge. Some excellent personal finance books to consider are:
- The Richest Man in Babylon by George S. Clason
- The Intelligent Investor by Benjamin Graham (Warren Buffet’s mentor) is a good one, though denser material.
Look for books that provide practical money tips and insights into the psychology of money and wealth building. Make sure they are written by people with a financial freedom mindset. Take notes and apply the lessons to your own financial situation.
Attend a Financial Freedom Retreat
Unlock your path to financial freedom by addressing the real obstacles—habits and mindsets, not just strategies.
Join our Expand Intensive on Financial Freedom and experience the breakthrough you've been seeking. Ready to transform your financial future?
Sign up for our waitlist today and be the first to know when the Financial Freedom Intensive opens for registration. Don't let old habits hold you back any longer—take the first step towards a financially liberated life now!
