The 4 Numbers to Reach Financial Freedom

 By Miguel Dos Anjos 
                In order to achieve financial freedom you need to know with precision where you stand now, and what your final goal is. Once your current situation, and your ultimate goal are stablished you will set up short term goals (today, a week, or a month), mid-term goals (half a year, or a year), and long term goals (3 to 5 years, and 10 to 20 years).

To understand your current situation you need to know 4 numbers:

1-      Debt amount: the only way to know where you stand is by writing down all your debt, and adding it up. I understand this might seem depressing, or scary, but to deal away with debt requires understanding where it is coming from, and how much it is. Do not worry we will provide tools to help defuse the debt bomb later.

2-      Net worth: similarly add up your net worth. This list includes your 401k, other retirement accounts you have, investing accounts, rental units, and/or properties. Hopefully, and ideally your net worth is shaped in a way it does not take from your pocket, but instead assist you adding to your pocket, or by working for you as a savings account. If your net worth, and possessions are not currently helping you grow your wealth you have to consider start converting them into ways that they will add to your income, or net worth meaningfully. The reason I say this is because if you have an enormous pay check today, and lots of possessions, but your possessions behave as luxury cars, or houses, and eat up all your monthly salary, this situation is not sustainable long term specially in the case of an emergency or a change in your current well-paying job. If your income drops you may become unable to make payments. For this reason putting the money in investments that will generate more money is key.

3-      Recurring monthly payments: this list includes your job, interest you collect from your high APY accounts, dividends you collect from stocks, part time, side hustle, and business.

4-      Monthly expenses: Home; includes rent, or mortgage, fees, insurance, taxes, home repairs. Utilities; electricity, water/Sewer, gas, phone, cable. Food; groceries, eating out, coffees, drinks. Car expenses, health insurance. 

At this point you should have 4 lists that will give you 4 numbers;

Debt amount, monthly expenses, net worth, and recurring monthly payments. If you need $40k a year to retire you need about $1 million saved up. $1 million with 8% return equals to $80k a year, adjusting to inflation, and taxes that is your number, as long as the return is at a minimum of 5%.

Be Realistic

Be realistic if you have $80k this year will you only spend $40k? If your answer is no then you might want to aim a little higher for your retirement:

$1.5 million = $60k year

$2 million = $80k year

$5 million = $200k year

                These numbers show that you do not need to wait to turn 62 or 75 years of age to retire, as long as you do some planning. If you have achieved the amount of money you need for you desired retirement, you can retire at age 35, 30, or even earlier.

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             Our video on this topic: The 4 Numbers that Lead to Financial Freedom