A secure retirement and financial freedom is the main reason as well as motivator to do financial planning. In our society, we all focus on retirement as the time to have enough money amassed so that we don’t have to worry anymore.
The definition is very simple:
“Financial Freedom is when your money works for you and you don’t work for money anymore.”
The amount of money you need for financial freedom is uniquely dependent on you. I will show you below that you don’t necessarily need millions to have financial freedom.
In your planning, you never touch the principal while you are doing your calculations.
You also want to make sure you have more than one source for your income needs. That is actually true no matter if you are in the accumulating phase of life, financially free prior to retirement or in retirement.
The lifestyle / million-dollar question here is:
Are you content with a simpler life with the freedom of no money worries?
OR
Do you want your toys and luxuries at any price?
Either one is attainable, but let’s look at the two options and what it takes to be financially free.
Example 1 – Simple Lifestyle:
Required Income: $50,000 per year
Annual Return: 9%
In order to be financially free, you would need $560,000 to earn the above income.
Example 2: Toys and Luxuries:
I will use a required income of $200,000, although some of you will say: Are you kidding, how could I ever live with that little money?
Required Income: $200,000 per year
Annual Return: 9%
In order to be financially free, you would need $2,200,000 to earn the above income.
I am sure you are thinking now, 9% annual return is pretty high. What about down years in the market?
I don’t think you should invest all that money in the financial markets. What about one or two small businesses that give you passive income? Examples that come to mind are Laundromats, Self-Service Car washes, Vending Machines and your return will be much higher than 9%.
All these have some work involved, but are fairly passive and can be systemized considerably.
Source: http://www.ArticlePros.com/author.php?Patrick Peterhans
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