A couple of months ago, I was invited by Federally Employed Women (FEW), the women’s resource group for Federal employees, to lead a series about women and wealth.
One of the things I shared in the series was the concept of the enough number, also known as the financial freedom number.
It is the basis of the Layered Wealth™ framework we use with a small group of clients at our sister company, In The Black Wealth.
When I meet someone and they tell me they want to achieve financial freedom, one of the first questions I ask is what is their enough number.
Usually, they have no idea what I’m talking about. In today’s fast-paced world, financial freedom is a goal that many aspire to achieve. It represents the ability to live life on your own terms, free from financial stress and constraints.
While the concept of financial freedom may seem like an elusive dream, it is within reach with careful planning and a clear understanding of your financial situation.
One key aspect of pursuing financial freedom is calculating your “Financial Freedom Number” – a crucial step towards mapping out your path to financial independence.
Today, I want to share with you the quick and dirty way to determine your enough number and how alternative investments can help you achieve it.
Your Financial Freedom Number is the amount of money you need to accumulate to sustain your desired lifestyle without relying on a traditional job or regular income. It represents the point at which your passive income (income generated from investments, rental properties, dividends, etc.) covers all your living expenses. In other words, you have achieved financial independence once you reach your Financial Freedom Number.
To calculate your Financial Freedom Number, you need to understand your current financial situation and your desired lifestyle clearly. Here are the key steps involved:
Step 1: Evaluate your current expenses: Start by examining your monthly expenses in detail. Categorize them into essential expenses (e.g., housing, food, healthcare) and discretionary expenses (e.g., entertainment, vacations). Be thorough and include all expenses to understand your financial obligations accurately.
Step 2: Determine your desired lifestyle: Consider the lifestyle you aspire to have when you achieve financial freedom. Would you like to travel extensively, pursue hobbies, or engage in philanthropy? Estimate the associated costs and add them to your monthly expenses.
Step 3: Assess your passive income sources: Evaluate your current investments, such as stocks, bonds, real estate, or business ventures. Determine the annual income generated from these sources and divide it by 12 to calculate your monthly passive income. If you have not yet started building passive income streams, now is the time to research and explore various investment options.
Step 4: Calculate your Financial Freedom Number: Subtract your monthly expenses (including your desired lifestyle expenses) from your current monthly passive income. The resulting number represents the additional monthly income needed to reach financial independence.
An alternative approach to calculating your enough number is by totaling up all of your monthly expenses and multiplying by 300 or 400. The result is the amount needed to generate enough passive income to achieve financial freedom. Take a look at this example using a portfolio that generates a very conservative return of 6%.
Once you have calculated your Financial Freedom Number, it’s time to devise a plan to close the gap between your current monthly passive income and your financial freedom monthly passive income number.
Here are some ways you may not have considered:
Our RainMakers Collective members have an opportunity to invest in a business that pays dividends, a great way to generate passive income. You can read about the company, The Culinary Creative Group, and the opportunity in our members’ portal.
If you’ve never calculated your financial freedom (your enough number) follow the steps outlined above to determine what it will take for you to achieve financial freedom.
Then consider investing in alternatives to close the gap between your current monthly passive income and the amount necessary to cover your monthly expenses.
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Columbus Eagles FC