Financial freedom is a topic that interests a lot of persons because they start to imagine living a life free from financial worries with the freedom to enjoy life to the full. But is it easy to come by?

This article gives you insight into what a financial freedom number is and how to calculate it. We will also consider what you can do to achieve financial freedom earlier on in life. Let’s get into it.

• What is my Financial Freedom Number?
• How can I calculate my Financial Freedom Number?
• What is the 4% Rule?
• What is Financial Freedom?
• What are the 10 Steps to Financial Freedom?
• What Does Financial Freedom Look Like?

What is my Financial Freedom Number?

Your Financial Freedom number is the amount of passive income needed in order to pay for your daily living expenses. It’s the amount of income required from your savings and investments that would allow you to quit your job and no longer work.

That doesn’t mean you have to quit your job, but it gives you the freedom and control to do so if desired. It also gives you the confidence to make decisions based on your own passions and desires.

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Think about it: if you enjoy working at your office job, great. Good for you! But what if a company buys out your firm and replaces management with people you don’t get along with?

If you don’t have financial freedom, there is little you can do about it, besides applying for other jobs and dealing with the unpleasant workplace until you get a new one.

It makes it so you are never “stuck” doing something you don’t want to do.

The great thing about this exercise is that it’s not just one number you can strive toward. You can look at it as levels of financial success you can obtain along the path toward financial freedom.

How can I calculate my Financial Freedom Number?

It simply takes two steps:

1. Figure out all your expenditures for the last 12 months

Some people like to use the last 3-6 months time frame, but you can also use the last 12 months. This creates a better picture of your overall expenditures and evens out the seasonal fluctuations.

You can use Personal Capital and it’s all automated for you and broken down by categories. However, some people like using YNAB or Mint.com. Others like to do it old school and put everything on a spreadsheet.

Make sure to take a look across all of your bank and credit card statements, and account for large cash purchases as well (if you can remember them).

2. Add up all these expenses and simply divide by 12

Doing this will give you your average monthly expenses. This number is also your Financial Freedom Number. If you can hit this number or exceed it with monthly passive income, then you can consider yourself financially free.

Sounds simple… because it is. But what’s amazing is that most people don’t know what their personal number actually is.

It’ll probably take you about an hour to get this done if you’re doing it by hand. But trust me, it’ll be one of the most effective hours of your life.

Again, we need to know what our goal is. Aimless running doesn’t help. Having a clear vision of the number you want to reach is the best and most effective way to make it happen.

What is the 4% Rule?

After figuring out your Financial Freedom Number, some like to use the “4% Rule” to determine what size portfolio will allow you to be financially free.

The “4% Rule” states that you can withdraw 4% of your portfolio value each year (adjusted for inflation), and depending on your allocation, but it should last 30 years with over 95% certainty.

The idea is based on the often referenced Trinity Study. Another way to calculate this is to take your yearly expenses and multiply by 25.

For example, if your expenses add up to $100,000 a year, you simply multiply that by 25, and that tells you that the size of your portfolio needs to be $2,500,000 for you to be considered financially free.

What is Financial Freedom?

Financial freedom is about taking ownership of your finances. You have a dependable cashflow that allows you to live the life you want. You aren’t worrying about how you’ll pay your bills or sudden expenses. And you aren’t burdened with a pile of debt.

It’s about recognizing that you need more money to pay down debt and maybe increasing your income with a side hustle – we’ll get to that in just a minute. It’s also about planning your long-term financial situation by actively saving for a rainy day or retirement.

What are the 10 Steps to Financial Freedom?

1. Understand Your Financial Situation

You can’t achieve financial freedom without knowing your starting point. Looking at how much debt you have, how much savings you don’t have, and how much money you need can be a depressing reality. But this is a valuable step in the right direction.

Compile a list of all your debts: mortgage, student loans, car loan, credit cards, and any other debt you may have accumulated. Don’t forget to include any money you may have borrowed from friends or family members over the years.

Now, take a deep breath. And another one. Then add up all the numbers. How much debt do you have?

If it’s a big number, don’t freak out. If it’s a small number, congratulations.

Next, take a look at all the money you have saved up.

Compile a list of all your savings: savings accounts, stocks, company stock-matching programs, company retirement-matching programs, and retirement plans.

Then we’ll add the recurring monthly payments you receive such as salary, side hustle money, and so on.

Keep these numbers in mind as we work through the next few financial freedom tips.

2. Look at Money Positively

Debt can definitely be a little bit discouraging. But remember that money is a good thing, even if it seems to carry a lot of burden right now.

You deserve to achieve financial freedom.

According to You Are a Badass at Making Money by Jen Sincero, people who don’t make a lot of money often feel shame when it comes to making money.

And so the biggest obstacle that many people experience when it comes to making money is that they feel like having money is bad. Many feel guilty for having it and guiltier for wanting it.  

Sincero has said about money, “We use it everyday to enhance our lives, yet we always seem to focus on the negative about it.”

Money is simply a necessity like food or water. It helps you buy the things you need and live the life you want.

To experience financial freedom, you’re going to need to look at money as a tool to help you achieve your dreams, fuel your energy, and live a stress-free life you can enjoy.

Because if you view money negatively, you’ll subconsciously sabotage your chances of making it and keeping it.

3. Write Down Your Goals

Ask yourself, Why do you need money?

Do you want to get rid of debt for good? Are you desperate to escape the 9-to-5 grind? Is there a place you’ve always wanted to travel to? Do you need to save for a wedding, kids, or retirement?

You might not accomplish everything you want in a month. But a year is a long time to make progress on your goals.

Make sure your goal is tied to a specific number that you want to hit. Believe it or not, you’ll start working towards those goals without even realizing it.

Knowing exactly what you want to achieve makes achieving financial freedom a million times easier.

4. Track Your Spending

An important step toward financial freedom is tracking your spending.

You can use a tool like Mint, which will let you know how much money you’re spending, which categories you’ve overspent in, how much money is in all of your accounts, and how much debt you have.

Another cool thing about Mint is that it allows you to set goals within the dashboard. You can keep track of your goals and know the exact month you’ll be expected to hit the goal based on how much money you put in.

Thus, keeping you accountable and reminding you to keep putting money towards it for you.

Mint helps you stay focused on my goal and pushed me towards creating more passive income to hit my financial milestones.

5. Pay Yourself First

You’ve probably heard the expression “pay yourself first” before. But in case you haven’t, “pay yourself first” means putting a specific amount of money in your savings account before paying anything else, such as bills.

And the act of paying yourself first has helped countless people inch closer to achieving financial freedom.

Why?

Because if you want to pay yourself $1,000 per pay period first, then whatever’s left over needs to go towards bills. And if you don’t have enough to cover those bills, then you’re forced to pick up a side income to make up the costs.

By paying yourself first, you guarantee that you’re always putting money aside to invest in yourself. By doing the opposite, you only get whatever is left over, which usually isn’t substantial enough to help you experience financial freedom.

You can pay yourself first in other ways too. For example, if your company has a retirement savings program, you can ask to have money withdrawn for your retirement. That way you’re investing in yourself and your future first.

The money gets deducted from your pay so everything that’s left over is money that you can put aside for your bills and expenses.

6. Spend Less

In 1958, Warren Buffett purchased a five-bedroom home for $31,500 and hasn’t moved out of it since. His net worth?

An astounding $90.3 billion. He can afford a bigger and more expensive home. But his frugality might very well be the reason why he’s one of the world’s richest people.

Kanye West, on the other hand, isn’t afraid to flaunt his money. He lives in a $20 million mansion. And at one point, with $53 million of debt, he decided to ask Mark Zuckerberg for $1 billion… on Twitter.

The difference between the two super successful gentlemen? Buffet didn’t spend more than he needed to, and West spends money he doesn’t have.

The truth is, plenty of rich people don’t look like rich people. Zuckerberg literally wears the same boring t-shirt and jeans everyday.

Buying less stuff can actually help you get richer.

By spending less, two things work in your favor. One, you’ll have more money to put aside for your financial freedom. Two, you’ll learn that you actually need a lot less stuff to survive, which also helps you put aside more money.

And this goes into our next point…

7. Buy Experiences Not Things

Life’s short. It’s not about hoarding all your cash until you’re 65. You’re allowed to enjoy life while you’re alive.

Ultimately, the things that’ll help you live a more fulfilled life will be the experiences you have, not the products you own.

And are the things you buy making you happier over the long-term? Does the debt you have from buying a bunch of stuff make your life easier?

Now let’s flip the switch. What’s your happiest memory? What were you doing? Who were you with?

Let’s create more memories just like that. Maybe you have a friend you love working out with. Invite her over to workout to a YouTube playlist at home for free.

It’s date night. You want to make it unforgettable. Find a cool activity you’ve never done before on Groupon for a fraction of the price.

You’ve always dreamed of travelling to Rome. You’ve been saving up money for a year to experience your dream vacation. Go on that vacation feeling guilt-free.

You didn’t go into debt for it, you’ve earned it. Or you can become a digital nomad and travel the world while working abroad.

Life is made up of moments. The best ones come from quality time spent with friends and family. While some products can help bring you closer to your family (like weekly family video game night) most of them don’t add much value.

Don’t spend money you don’t have to pretend that you have money.

8. Pay Off Debt

Some people will tell you it’s wiser to invest your money in stocks instead of paying off your debt. If you’re an expert stock picker, maybe that’s true. But if you’ve never invested in stocks before, you could wind up with more debt.

A lot of people feel the same thing after finishing their last debt payment: relieved.

If you have $50,000 of debt, even if you have $30,000 cash in the bank, you can’t really call yourself financially free. You’re still $20,000 in the hole.

While paying someone else isn’t as glamorous as having money in the bank, it does bring you closer to financial freedom.

There are two main methods of paying off debt: snowball and avalanche. Snowball is when you pay off the smallest debt first. Avalanche is when you pay off the debt with the highest interest rate.

You need to decide what works best for you.

Paying off a big debt lifts a massive weight off your shoulders. After paying off your debt, you see the amount of money you have in the bank rise.

It’s an awesome feeling watching the number climb (even if you had to watch it fall at the beginning), and it keeps you motivated to continue growing it.

9. Create Additional Sources of Income

Okay, so at this point, you’re probably thinking, “My debt is a lot more than my salary, how can I pay it off if I don’t make enough?”

If you’re serious about financial freedom, you’ve got to sacrifice some blood, sweat, and tears. Your 9 to 5 might not cut it. If that’s the case, you need to step it up and look for money outside your current job.

Some experts recommend having seven streams of income. If you have a 9 to 5 job, congratulations, you have one, only six more to go!

Now, you can look at your sources of income in two ways: active income (trading time for money) or passive income (money that can keep coming in, even while you sleep).

If you trade your time for money, you’re limited by the hours of the day. Here are a few side jobs you can do to earn an active income:

• Become a freelance writer finding jobs on ProBlogger
• Help a business owner as a virtual assistant with jobs on Upwork
• Become an Uber driver
• Help with household tasks on Task Rabbit
• Pick up the odd, ocassional job on Craigslist
• And more!

If you don’t have a lot of time to devote to earning income, you can focus on increasing your income streams with passive income like:

• Starting a dropshipping online store
• Start your own custom clothing business on Shopify
• Sell profitable content (blog, ebooks, courses, webinars, audiobooks, podcast, apps)
• Become an affiliate marketer
• Buy properties and rent them out
• Invest in stocks

Fortunately, your seven streams of income can all come from the same source. For example, if you’re an ecommerce expert, your seven streams of income can come from creating seven different stores.

And remember: you don’t need to start with seven streams, you can build up to it over time.

10. Invest in Your Future

The last financial freedom tip is an important one. Say you follow the advice and recommendations in this article, get out of debt, and grow your savings.

That might be enough to help you out right now. But what if the unexpected happens? Will you be prepared for it?

It’s important to set aside money for rainy days, retirement, and (sorry to be morbid here) in case you die to help ensure your family doesn’t drown paying for your funeral, debts, and taxes. Okay, now let’s get back to that happy place.

If you’ve got that 9 to 5 job, talk to your company about adding a retirement plan, or check to see if you’re already having deductions made towards it.

The  deduction gets taken out before it hits your account, so you never feel like you’re losing money. And it’s pretty cool to check it out periodically and see your savings grow.

Next, you also want to save enough money for an emergency fund. Some experts say $10,000 is fine while others say six months of your salary. And to be honest those numbers can seem pretty high if you don’t make a lot of money.

So instead, start with a goal you can afford – like $100 your first month. And as you start earning more active or passive income, start increasing your goal to $500 a month to $500 bi-weekly and so forth.

If you’ve overspent on credit and a high credit card bill comes up, don’t use your emergency fund – focus on taking up more active income opportunities so you can pay it down faster.

The emergency fund is only for unplanned emergencies like a tree crashing onto your house, a car accident you need to pay for out of pocket, or a visit to the hospital.

By setting aside money for rainy days and retirement, you’ll be less likely to end up back to where you are now: wishing for financial freedom.

What Does Financial Freedom Look Like?

To some, it might mean being debt-free. For others, it’s all about having a locked-and-loaded emergency fund, or being able to retire early.

We caught up with four people who are all enjoying their own version of financial freedom. Even if their definition isn’t yours, you can still take their smart money lessons to heart.

“Every dollar is mine to spend—so I chose to spend them in paradise.”

Corey Blake, 30, CEO of a digital marketing agency in Oahu, Hawaii

“Financial freedom doesn’t happen overnight—but there’s definitely one simple way to supercharge your efforts: Avoid debt. Because my wife Bridgette and I aren’t chained to creditors, we’re able to stretch our monthly income and live comfortably in our favorite place: the north shore of Oahu.

It helps that we’re minimalists by nature, which has been a game-changer: We’re raising our two kids to value experiences over stuff; rather than accumulating things we don’t need, we’d rather make memories. Hiking or hitting the beach are free activities that also help us connect as a family.

We’ve struck a healthy balance—it’s not like we have no furniture! But we do our best to live without excess when it comes to clothes, gadgets and the like. For example, we share one car and rely on the bus or Uber when needed. Basically, we live within our means, and don’t use credit cards unless we can pay them off immediately.

Granted, it wasn’t always this way—we worked up to it. After starting my marketing company in 2013, Bridgette and I moved from pricey Hawaii (where I’d gone to school) to Arizona to save up. Two years later, thanks to the much lower cost of living and my gradually increasing salary, we’d saved about $20,000.

That’s when we ‘decluttered’ our life, selling off everything from our TV to all of our kids’ excess toys. This brought in an extra $4,000. With just four suitcases in tow, our family moved back to Oahu in earlier this year.

The whole reason I work so hard is so that our family can live a life where our time is aligned with our passions. Too often, people get stuck somewhere they don’t want to live, doing a job they don’t like, surrounded by a bunch of stuff they don’t need. Changing your mindset can be hard at first, but financial freedom is well worth it.”

“Paying off my mortgage gave me peace of mind in uncertain times.”

Sharon Marchisello, 64, money blogger and author in Peachtree City, Ga.

“When my husband Michael and I bought our four-bedroom house in 1994, we were on the hook for $183,000, which felt like a mountain of debt. Fortunately, we were otherwise debt-free, so we immediately started hacking away at the 8.8 percent loan. I was working as a project manager, Michael as a flight attendant, earning a combined $95,000 per year.

We began by sending the next month’s principal along with each month’s regular payment. Four years later, the strategy had helped us shave $20,000 off the total balance. That’s when we refinanced from a 30-year to a 15-year loan with 6.75 percent interest and began contributing anywhere from $100 to $1,000 each month toward extra principal payments.

We’d whittled our balance down t just $65,000 in 2003, when the major airline Michael and I both worked for was teetering on the edge of bankruptcy. With our jobs anything but secure, it felt like the right time to eliminate our mortgage payment—our biggest monthly expense by far—just in case we found ourselves unemployed.

Interest rates were going down, which had us thinking about refinancing again—but we ultimately decided to transfer money from a savings account that was earning just 1 percent in order to retire the loan altogether.

This majorly increased our cash flow, allowing us to quickly replenish our emergency fund and start maxing out our 401(k)s. Paying off our mortgage reduced our expenses so much that I was able to retire in 2008, which has freed up time for me to pursue my passion for writing. In other words, life is good!”

“I love my work, and enjoy tons of family time on my own terms.”

Liz Coyle, 33, travel blogger in Phoenix, Ariz.

“For many years, I thought I had financial freedom. I had a director-level position at a law firm, a six-figure salary and the purchasing power to cover all my needs.

But that all changed when I had my first child in 2015, and 60-hour workweeks translated to precious time away from my husband Chris and son Jude. I kept up with the 9-to-5 working mom routine for about 18 months before hitting a wall.

But I couldn’t just quit my job—we really needed to two incomes to live comfortably. So I reevaluated my skill set: I’m a travel junkie by nature and love water sports. And having majored in journalism, I was no stranger to writing.

So I decided to try my hand at blogging, relying on Chris’s income as a sales exec and our savings while I worked out the details.

First, I created a goal roadmap, researching everything I needed to know to launch a profitable blog. At the three-month mark, I wanted to have my infrastructure and digital platform in place.

After six months, I needed 60 articles on the site to provide a solid base and drive traffic. After a year, my goal was to have 500 visitors per day and earn $6,000 per month.

The six months that followed were defined by late nights and hard work. I even put Jude in daycare part-time in order to get more done. But I ultimately hit my 12-month goal two months early, earning enough to cover half of my household expenses!

Almost two years have passed and I’m going stronger than ever. These days, I’m even earning more than I did at the law firm.

The best part? I work from home and enjoy tons of family time. And since my blog is all about travel and leisure, we get to go on adventures fairly frequently. So far, my work has taken us everywhere from Maui to the coast of Maine. Instead of having to choose between work and motherhood, I’ve been able to create a life that blends both.”

“Now I work because I want to—not because I have to.”

Robert R. Johnson, 59, president and CEO of a financial education institution in Bryn Mawr, Pa.

“So many of us spend years going through the motions of an unfulfilling job just to collect a paycheck. I’m fortunate to say this isn’t what my life looks like at all, thanks to smart and early investing. For me, financial freedom is the ability to work only because I want to, not because I have to.

I didn’t win the lottery or come into a windfall of cash. I credit my financial freedom to simple investing strategies—which ultimately helped me leverage ordinary paychecks when I was just starting out to grow my net worth. After all, growing your wealth is less about the size of your paycheck and more about what you do with it.

Since I began working in financial services education at 27, I’ve always prioritized maxing out my 401(k) contributions. I also got into the habit of paying myself first.

Read Also: How to Budget for Personal Finance

Instead of saving whatever I had leftover after spending each paycheck, I’d earmark a minimum of 15 percent of my earnings for savings and investing right away, then create my monthly budget around what was left.

The magic of compound interest has played a huge role, which is why young investors really have a leg up. A long-term horizon was the most powerful tool in my arsenal.

After 32 years of consistent investing, I’ve hit my retirement goal number, but choose to keep working because I truly enjoy helping educate financial advisors, so others can experience what I’m experiencing now. I can’t imagine a better way to spend my time.”

From all the life experiences we have seen above, one thing is for sure. Achieving financial freedom will not come easy, however, the benefits are endless and worth it. So any effort you put in to achieve it is not a waste.

Finally

Financial freedom can help you take ownership of your finances and, more importantly, your life.

It’s about living within your means, being a bit frugal, and making sure that money is spent on things you really need like food, shelter, and yup even vacations (relaxation is important too, you know).

By following the financial freedom tips in this article, you’ll inch closer to achieving the financial freedom you deserve. So take a look at those finances, build additional streams of income, pay down that debt, and before you know it you’ll be free.