Planning for retirement, or even financial freedom, is like running a marathon and not a sprint, as the saying goes. Breaking up your financial independence goals into small chunks can help keep you on track while making the process a bit more manageable and, hopefully, a little less stressful. Even if you are starting small, the important thing is to get started.
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We agree with David Rae who wrote about the eight levels of financial freedom;
NOT LIVING FROM PAYCHECK TO PAYCHECK
The first level of financial freedom is building up an emergency fund. Ideally, this will include paying off any credit card debt as well. Getting rid of any debt you have built up on the way.
ENOUGH MONEY TO QUIT YOUR JOB (for a bit)
Financial freedom is all about making work an option. Saving enough money to quit your job forever is a huge undertaking. Accumulating enough money to be able to take some time away from working is a big jump in that direction. This does not mean you have to quit your job, but it sure is a good feeling to know you can.
In the shorter term, that extra money could also serve as your emergency fund. I mention this just in case some of you want some extra motivation to get to this level. What does this level of financial freedom mean to you?
ENOUGH TO BE FINANCIAL HAPPY AND STILL SAVE
This is a bit more about enjoying your life and having the money to do it. There is an immense sense of relief when you earn enough to save, do the things you enjoy and still have some extra money at the end of the month.
That extra cushion can be used to move up your financial freedom date. That of course assumes you avoid increasing your lifestyle and spending it. How much would you need to feel this amount of cushion?
FREEDOM OF TIME
What many people desire is more flexibility with their schedules. Free time and financial independence go hand in hand. Together, they are about leaving the rat race to follow your passion, or spend more time with family and friends, and not go completely broke doing it. It could come in the form of more paid time off, flex time or perhaps remote work on occasion. Not having to take a day off from work just so you can visit the dentist or take your kid to the doctor could be a huge benefit for some.
ENOUGH FOR A BASIC RETIREMENT
Do you know anyone who hates their job? I mean really hates it. I have met a few over the years!. Those individuals were willing to do almost anything to retire as soon as possible. Some considered things like moving to a foreign country with a low cost of living, selling their home or getting roommates. I should point out that those people were closer to full retirement age.
For those of you looking to retire early with financial freedom, think about what your bare minimum requirements for retirement would look like. Could you move to a place with a lower cost of living? Would you give up going out to dinner? Work towards a nest egg that will support this bare-bones lifestyle. You probably will decide against moving to that cabin in the woods without running water, but it might be nice to know you could. Considering your bare minimum retirement, and knowing you have enough money saved to at least maintain some standard of living in your early retirement, will also influence other life choices you may make along the way.
Would you lease a new luxury car if you knew it meant you would have to work a few more years? Downsizing your house might look more appealing if it meant you could retire now rather than in 10 years time.
ENOUGH TO ACTUALLY RETIRE WELL
Assuming you are doing pretty well and are happy with your current standard of living, what would you need to maintain your standard of living in retirement? Knowing you are on track to accumulate a nest with eggs to support that lifestyle is a big win. Gold medals go to those who have accumulated enough assets, or passive income streams, to be in a position to retire well.
Enough for Dream Retirement
If you did not spend 40, 60 or more hours per week at work, what would your dream life look like? Would it include things like traveling more and spending more time with friends and family? Traveling the world, flying first class, and staying in nice hotels does not come cheap. Think big here. What would really bring joy into your life.
How great would it feel knowing you are on track to have enough money to retire and be able to live your dream life? What is stopping you from getting there before you are 70 years old?
More Money Than You Could Ever Spend
This is probably the most exclusive level of financial freedom. Hopefully, your financial freedom plan will allow you to outlive your money. Having more money than you expected to spend is great. Building enough wealth so that you could not possibly spend all of it is another. This group will likely be filled with people who either won the lottery, inherited a fortune or are founders of companies – think Bill Gates or Warren Buffet. Even if they went on a spending spree buying planes, yachts and automobiles; they would still have a hard time spending all of it. I should note that both Gates and Buffet have pledged to give away a vast majority of their wealth when they pass away. I would be unfair to count that as “spending all their money.”
Take a look at where you think you rank on the aforementioned levels of financial freedom. Use it as motivation to keep moving towards your most important financial goals. While we love what we do, and plan to help people move toward ever growing financial freedom, we take comfort knowing that it will be a choice to continue working in our golden years. Although we are still years away from full retirement age, we are right between bare bones retirement. We still have goals to achieve and levels to grow towards, but we are confident that we will get there.
What is the level you find yourself at now and where do you want to be in 5, 10 or 15 years?
Contact us (for free) if you want a sparring partner to see what suits you.
Prosperity starts in your heart, not in your pocket!