Financial Freedom

My definition of financial freedom.

The definition of financial freedom can vary from person to person yet it is a concept I often discuss with clients. It is a concept that I have put a lot of thought into over the years and is one of the primary drivers why I became a Financial Adviser in the first place.

To me, financial freedom is the ability to make work a choice and not an obligation. It is when you have enough assets to provide sufficient passive income to meet your desired standard of living without having to go to work.

The amount of assets you need to achieve this goal is unique to everyone as it depends on how much income you need to live a comfortable lifestyle and what assets you are willing to invest in. Let me explain further.

Someone who is only willing to invest in term deposits is going to need a lot more in assets to produce the same income as someone who is willing to diversify their portfolio into growth assets such as property and shares. This is because a term deposit will only produce income between 2% – 3% per annum (in today’s market) while growth assets can produce an income of 6%+ but you must deal with a bit of volatility in your portfolio.

Smart investors will have a mix of both defensive and growth assets in their portfolio. This gives you security and strategic options in a market downturn while still generating a decent income.

The other factor that is going to impact how much you need to achieve financial freedom is how much you want to spend each year. Someone who lives a more lavish lifestyle will need a lot more than someone who is happy with the basics. If you are not sure how much income you need to live a comfortable lifestyle I would suggest looking at the ASFA Retirement Standards.

Financial freedom is not elusive, it is achievable. It doesn’t happen overnight and it is something that you need to work towards for many years. If you do not feel you are on the right path to achieve financial freedom then let’s have a chat and we can set you some targets to achieve in the new year.