What is your Financial Freedom Number?

Many of you must be wondering what is financial freedom? Some may be guessing that financial freedom means freedom from all the financial worries, getting rid of one's debts or any other financial obligations one might have. Though these guesses are somewhat on the track, but these are not completely right. So, let us find out what is meant by financial freedom and how it can be beneficial for you and how to arrive at your financial freedom number. 

Financial freedom simply means attaining financial independence. It means that you have everything that you need today, including one or two luxury goals for the future and you do not have to work to pay for them. You need to have a passive income to attain financial independence. It is that situation wherein your savings and investments would allow you to quit your job and no longer work. This does not mean you need to give up on your job, but it gives you the freedom to do so if you so desire. 

Benefits of financial freedom:
1. No need to work : Financial freedom would mean your income is on auto mode, either by way of interest on savings, investments or business. This is an extremely difficult goal to achieve, but making a headway towards the goal could prove to be blissful for you. 
2. Income exceeds expenditure : Your financial freedom ensures that you earn more than what you spend. People earn six-figure salaries but are burdened under debt, be it home loan, consumer debt or any other loan. If expenses exceed income, then one is not financially free as the financial situation will remain in stress.
3. Pursue your passion : There is a very rare possibility that you are working where your passion is, unlike many people who are just into a rat race to satisfy their and their loved ones' increasing needs. In this, generally people forgo their passion as survival and fulfilling the needs are a higher priority than pursuing one's passion. But once you attain financial freedom, you can pursue your passion freely. 

Levels of financial freedom There are levels of attaining financial freedom. You can have different needs that may fall into different categories, such as basic and luxury.
1. Basic financial needs : The very first level to attain financial freedom is to make provision for all your basic expenses, such as rent or mortgage, food, utilities (gas, electricity, water, phone, etc.), fuel, insurance, etc. Once these are provided for, you can move on to the next level of attaining your financial freedom. 
2. Semi-luxurious financial needs : This is the next level on your path to attain financial freedom. On this level, you may make provision for some of the semi-luxury expenses such as expenses on clothing, dining out, going for a movie or any such recreational expenses, membership of a gym, spa, going for a one-day trip, etc. 
3. Current lifestyle needs : This is the level at which your savings and investments must fund your current lifestyle. To understand your current lifestyle, you only need to go through your bank and credit card statement and check the spending made by you. At this level, you need to make provisions for such spending. 
4. Luxurious/passion financial needs : At this level, you need to save and invest for luxuries such as world tour, buy a luxurious dream car, buy a farm house or even fund the pursuit of your passion or start a new venture, etc.

What is financial freedom number? Having understood different levels of financial freedom, now it boils down to the final number. This encapsulates the total provisions that you need to make across all the levels of your financial freedom. That is, your financial freedom number will meet all your needs, right from the basic financial needs to the luxury or passion financial needs. It is not important whether or not you are able to achieve the luxury needs, but you would be in a better position as you would be able to maintain your current lifestyle apart from meeting your basic requirements and some small luxuries.
Financial freedom different from retirement
Many people may get confused between planning for retirement and financial freedom. Though these concepts sound similar, there is a very thin line that separates them. Retirement planning is simply how much provision you need to make to survive in your golden years, but financial freedom means not just about surviving your retirement years, but it also comes with the additional benefit of allowing you to retire early and pursuing your passion while maintaining your current lifestyle even while allowing you to enjoy some luxuries. Retirement planning only covers level one of the financial freedom.

Let us take an example of Ramesh to understand how to arrive at the financial freedom number.
 It is assumed that Ramesh requires these amounts every year:
 Rs. 4,50,000 for basic financial needs,
 Rs. 1,50,000 for semi-luxury financial needs,
 Rs. 1,00,000 for current lifestyle needs, and
 Rs. 50,00,000 for luxury financial needs (one-time).

Now let us calculate the amount needed by Ramesh to be financially free. Following are the assumptions made.
 Current age: 30 years
 Expected age to attain financial freedom: 40 years
 Life expectancy: 85 years
 Luxurious financial needs exclude pursuit of passion Inflation assumed for basic financial needs and current lifestyle: 8%
 Inflation assumed for semi-luxury financial needs:10%
 Inflation assumed for luxury financial needs: 15%
 Return on investment is assumed: 10%

The above table shows that to get financial freedom from basic needs of Rs. 4,50,000 every year, which is likely to grow at a rate of 8%, Ramesh needs to have a corpus of approx. Rs. 1.40 crore at the end of 10 years or when he attains the age of 40. To achieve this, he needs to save Rs. 69,054 every month. Similarly, other calculations are done.

As we can see in the table, at the assumed age to attain financial freedom. Ramesh needs to make a provision of Rs. 1.40 crore to meet basic financial needs, Rs. 68 lakh for semi-luxury financial needs, Rs. 31 lakh for current lifestyle needs and Rs. 3.71 crore for luxury financial needs. So, for Ramesh, the financial freedom number is Rs. 6.09 crore. 

In a different scenario where Ramesh wants to invest a lump sum, he needs to invest Rs. 2.35 crore for 10 years to get his financial freedom. There is no complete freedom without Financial Freedom; Refuse to be a debt slave to a system that wants you be in a debt for lifetime

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