My Financial Freedom Number

How to calculate a financial freedom number

I was watching the last season of Billions, and there is a scene where Mike Prince asks the brilliant trader/ investor Taylor “what is your number?”, the number he is referring to is her financial freedom number, Financial freedom number refers to the amount of money that you will need to have in savings and or investments that allows you to do whatever you want to do with your time without having to work for money.

Most people simply work for money just to work for the money, the very few understand the power of money and have an end goal of where the money is going. By calculating and knowing your financial freedom number you will have a direction of where you want to take your monies, and a clearer picture of how your expenses erode the value and potential of acquiring Assets, the number also grounds you, in reality, to realize that building wealth is centred around being of service to as many people as possible and mastering the art and science of saving and investments.

Calculating your financial freedom number:

What amount of lifestyle do you want to live every month?__________

What percentage in Savings or Investments do you have the greatest certainty of return that you will get?_____________%

Current Inflation Rate?___________

1. Take the percentage certainty of return minus the current inflation rate ( inflation is a hidden cost of money).

2. Take the monthly expense/ lifestyle amount that you want to live with every single month, and multiply the amount by 12 months, which will give you a yearly expense/ lifestyle amount.

3. Take the yearly amount and divide it by the percentage difference (investment percentage- Current Inflation Rate).

The Practical calculation:

Monthly Lifestyle amount 20000.00

Percentage in return certainty 8% ( Stock Investments)

The current Inflation rate is 5%

Monthly expense/Lifestyle amount 20000.00 x 12 months= 240 000.00 ( Yearly Lifestyle amount)

Percentage return 8% minus Inflation rate of 5%= 3 % difference

Yearly expense amount 240000.00/3%( divide by 3 multiple by 100)= 8000 000.00

The 8 000 000.00 is the amount of money that would be needed on an 8% investment return in order to live a 20000.00 monthly lifestyle without having to work, that is the financial freedom number for a person to live a 20 000.00 monthly lifestyle.

Key Insights

This exercise helps you to be aware of the nuance and reality: the higher the lifestyle you want to live, the higher the number of monies you will need to have in savings/ investments to sustain the lifestyle. The higher the level of money mastery that you have the greater investment returns you are able to invest your monies into and the key to wealth is to keep your monthly expenses as low as possible.