ScaredyCatGuide to Your Financial Freedom Number

There is a common misconception about retirement as most people think of it as an age as opposed to a number.

Common thinking is if I work till 65 I can retire and live of my 401(k), pension, IRA...etc.

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What if this is a wrong way of thinking? How would it change your life?

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Financial Freedom is a Number not an Age

The question to ask yourself is - what is my financial freedom number?

To answer that question let's first understand what it is.

• Financial Freedom is when you have enough income coming in to support a lifestyle.

*Notice I did not say YOUR lifestyle. This is because you can choose to change your lifestyle as you work on your freedom number.

As for income, it can come from many sources:

• Dividends, Interest Payment, Royalties, Rental Income, Pension, IRA Distributions, etc.

Those are just some examples. Some are passive, some draw down on savings. All of them provide money to be used to live.

Building Your Number

The first and most important step is accounting for all your basic living expenses.

• How much income do I need per month to live?

Add up everything you spend each month for basic living expenses:

• Rent/Mortgage
• Food
• Utilities
• Insurance
• Car payment (although I suggest owning used with no loan)
• Gas
• Emergency dollars
  ....And anything else you use for basic living.

That is the number for you to survive. It isn't really flexible, it is the lowest about you need to come in.

Lifestyle

Now let's get into lifestyle. No one wants to just live on a level of survival. So from our basic living number we then add on the costs for a particular lifestyle.

This is where we have some flexible and you can make some fun decisions.

Example

Let's say you have enough income coming in now that you could leave your job and keep everything about your lifestyle, expect you would need to relocate somewhere cheaper (something you may be already considering come "retirement") would you make the move?

It's a fun and exciting possibility to ponder, right?

Better yet, how would it feel knowing that you have enough income coming in (excluding the income from your job) to cover your basic living expenses.

Wouldn't this take the pressure off a bit?

• Would you worry as much about your boss firing you?
• Would you be more inclined to leave your job to pursue a career or business you are passionate about?

Let's See Some Numbers!

I'll go ahead and build out my financial freedom number as a working example.

Monthly Living Expenses:

• House = $600
• Food = $500
• Gas = $150
• Utilities = $75
• Car Insurance = $100
• Health Ins = $250
• Cell Phone/Internet = $150
• Clothes/Shoes = $25 ($300 for the year - heck, I didn't even spend that much this year. Wardrobes last a while)
• Emergency Fund = $100 (That's 1,200 a year for surprises - an expense car repair, out of pocket medical costs, etc.)

These are the item I need to survive and be a productive member of society.

• They total $1950 a month

It's much less than I expected, but then again I am single with no kids and own my car outright. So it's probably a smaller number than those with a family.

Monthly Lifestyle Expenses:

• Vacation = $350 (cost of my typical three mini-vacations per year divided by 12)
• Eating out at restaurants = $300 (in addition to normal food expense)
• Saturday night out on the town = $250 (total of the 4 nights)
• Cable and Sports Package = $80
• The random concert/sporting event = $50 (avg. spread over a year)

Luckily many of my hobbies cost zero. For instance, I play basketball twice a week, which is free. Although I suppose I need basketball sneakers so let's throw in $10 a month for those.

My enjoyment and social life cost me $1040 a month. Damn, that's actually more than I hoped it would be. I need to tone it down!

So all told, if I want to live exactly as I am living now I need -

• Financial Freedom Number = $2,990 a month in income.

Working Toward It

I'm working hard toward that number. Between rental property income and some royalties from business investments I'm about half way there.

Best part is I would happily reduce my lifestyle expenses to reach my financial freedom sooner. Then I can post on steemit full-time and work more on the books that I am writing.

Conclusion

Work with an eye on your financial freedom number as opposed to a specific age!

There are all sorts of dynamics and angles once you understand what your financial freedom number is!

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Regards,

Thanks for pic pixabay
Disclaimer: All info in this post is my opinion and for educational purpose.