This is an important metric to track on your journey toward financial independence.
Your freedom number is the amount of money you need in investments in order for the return on investments to equal your living expenses.
Once you hit this number, your investments will pay your monthly expenses and you’ll become work optional.
Work optional just means that you can choose whether or not you want to continue generating more income since you don’t need it to sustain your lifestyle.
Many people think the best way to calculate your freedom number is to multiply your yearly expenses by 25. This is based on the 4% withdrawal rule in early retirement.
For example, if your annual expenses are $60,000, then $60,000 x 25 = $1,500,000 becomes your freedom number. Once you accumulate $1.5MM in investments, you can likely retire financially and live off your investments.
By reducing your annual expenses, your freedom number gets smaller, and you can “retire” sooner. And if you increase your annual expenses, your freedom number gets larger, and it may take longer to “retire.”
Oh, and remember, by “retire” we don’t mean stop working necessarily. We just mean you don’t have to earn an income anymore because your investments cover your living expenses. Many people who reach financial independence continue working but are able to choose any work/ministry they’d like, regardless of the pay, because their expenses are covered.
Once you have your freedom number, you can look at your savings rate and the average return of your investments and calculate about how long it will take you to reach that number.
The lower the freedom number and the higher your savings rate, the sooner you’ll arrive.
Imagine reaching financial independence and being able to donate your entire salary back to your church.
Imagine reaching financial independence and being able to serve full-time in a ministry you’ve always had a heart for, free of charge.
This is why tracking your freedom number can be so exciting!
