Some people use the words Financial Security, Financial Independence and Financial Freedom, interchangeably but here is what I have learnt from Tony Robbins.
Financial freedom is simply having all our current lifestyle costs and significant luxury items paid without having to work a day. At this point we have accumulated enough savings and investments to work for us. The annual income from these savings and investments will cover all costs.
In today's world, the amount of investment you will need to produce the annual income you require would average at about 20 times according to some experts. So say for example you worked out your financial security figure (see details below) to be $24,000 then the amount of investment you will need to produce the annual income to keep you financially secure would therefore be $480,000.
The best way to start is to work out your security amount, write it down and work upwards, step by step. Often we want it all right now but we can't jump before we can walk. If we do not take the time to at least calculate the costs and know our figure, how will we know what we are working towards?
The stages to financial freedom as I have learnt it from Tony Robbins
| Stage 4 | Financial Freedom | = | Every cost you have today+ 2 or 3 significant luxuries without having to work for it | |||||||
| Stage 3 | Financial Independence | = | All your current lifestyle costs paid for without having to work ever | |||||||
| What is your monthly figure | xxxx | |||||||||
| Annual Income required to cover these | xxxx multiplied by 12 | |||||||||
| Stage 2 | Financial Vitality | = | Financial Security figure + 1/2 of (current clothing, entertainment, little luxury costs) paid for without having to work ever | |||||||
| 1. Financial Security | xx | |||||||||
| 2. 1/2 of clothing costs | x | |||||||||
| 3. 1/2 of cable tv, dining out, etc | x | |||||||||
| 4. 1/2 luxury (gym, manicure, etc | x | |||||||||
| Total monthly | xxx | |||||||||
| Annual income required to cover these | xxx multiplied by 12 | |||||||||
| Stage 1 | Financial Security | = | Your basic needs paid for without having to work forever | |||||||
| 1. Your mortgage/rent | x | |||||||||
| 2. Utilities for your home | x | |||||||||
| 3. Food for your family | x | |||||||||
| 4. Transportation costs | x | |||||||||
| 5. Insurance costs | x | |||||||||
| Total monthly | xx | |||||||||
| Annual income to cover these | xx multiplied by 12 | |||||||||
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