Your Freedom Number Is Overrated
As you advance in your career and grow in financial stability there are several milestones you hit. Your first expensive purchase, the moment you stop living paycheck to paycheck, becoming financially independent and ultimately retirement. In order to reach the first two, passive income is helpful but for the last two it is mandatory.
Some people are able to reach this early in life by investing in multifamily real estate. But what does it really mean to be financially free? For some people it is a number. But, is that the right goal to pursue?
What Is a Freedom Number?
Everyone has one. A freedom number is the number of dollars of income you would need on a monthly basis in order to be financially free. For some people this is a 4-digit number, for others it may be a 5 or even 6-digit number.
Why such a big difference? It is based on your monthly expenses. In theory, if you have enough passive income to cover all of your fixed expenses you are free to spend your remaining income however you please. You’re financially free. Hitting this freedom number may free you from having to spend additional hours toiling at work, or from having to work all together. For some this is the key to early retirement.
"For some this is the key to early retirement."
Why Should You Have a Freedom Number
Having a freedom number gives you a concrete goal to work towards. You can then work your way backwards from that number to create a plan for how you will reach it. Depending on how soon you need to reach it you may invest in income producing assets such as multifamily real estate, stocks or bonds.
How do you calculate your freedom number? If your monthly expenses (car payments, utility bills, mortgage payments, groceries etc) average out to $5000 then your freedom number is $5000 per month.
How do you reach your freedom number? You would reason that you need 5 investments that make $1000/month or 10 investments that make $500/month. This is the freedom number where you have peace of mind that no matter what you do your bills will be paid. If you add one investment per year to your portfolio that generates $1000/month, you would hit your freedom number and be financially free in 5 years.
What is missing in your Freedom Number?
As we progress through life our lifestyle changes and with it, our expenses. Compare your expenses as a teenager, to college years, to starting your family, and raising your children. If you create a freedom number based on your current expenses you may find yourself living paycheck to paycheck or worse with insufficient funds to meet your financial obligations.
Even more, once you decide you want to be financially free and retire surely you will live and exist to do more than just pay bills. This is where a freedom number falls short and why your freedom number is overrated. To account for this, we have to look beyond a simple freedom number.
Focus on value instead of a Freedom Number
Freedom value is the benefit you are hoping to gain from being financially free. Most people don’t just accumulate money for the sake of accumulating it. Money is a means to help achieve some other goal, most often an emotional, value or lifestyle related need. Perhaps being financially free allows you to spend time with family, travel, perfect a hobby, pursue a passion, or take on the risk of entrepreneurship.
"Freedom value is the benefit you are hoping to gain from being financially free."
What is the value that you are actually using your finances to gain in each experience? If your financially free lifestyle includes spending more time with family, then your freedom value would be interpersonal relationships and quality time. If you would take on the risk of entrepreneurship then your values may be autonomy, leadership or independence.
How would you spend your time if you lived a financially free lifestyle? What value or emotional need would you be fulfilling? What is the freedom value that you currently want more of in your life?
The Secret to Achieve your Freedom Value
Because a freedom value is not a concrete number, how will you know you have achieved it? And how exactly do you make a plan to get there? Think of all the activities and meaningful aspects of your life. How are these in alignment with your freedom values?
If you don’t have any activities in your life that are in alignment with your freedom values then you may need to change your lifestyle. Maybe you have to move to a new environment.
Maybe you have to change your habits such as time management, dieting or overcome an unrealistic fear that has been restraining you. Or maybe reconsider your ideal values.
Include more of these activities in your life and you’ll achieve your freedom value. That’s it. That’s the big secret. It’s O.K. if your values change over time. Unlike a fixed freedom number, you have dynamic freedom values that will grow with you. This growth creates a more fulfilling life for years to come.
The amazing benefit of knowing your freedom value
If you find yourself chasing a freedom number, you may not be any more fulfilled once you achieve it than at the start of your journey. The thought of a freedom number may pacify you as it creates a concrete goal. This does not mean it is a worthy goal.
Being able to quit your job, or afford that oversized house does not suddenly make you fulfilled. The journey getting there may be more rewarding than the goal at the finish line. Many retirees experience depression for this very reason.
What is amazing is that you may find is that while achieving freedom values may not make you “financially free” (traditionally speaking), they will lead to a far richer and fulfilling lifestyle. Freedom values are what makes life worth living and are unique to you.
Passive income changes when you focus on freedom value
You may also find that the amount of passive income you need to achieve your freedom value is less daunting that a 5 figure monthly passive income. Instead of having to make three or four large investments over several years, you may reach your freedom value with just one. Everything after that would just be icing on the cake. This makes is clear you don’t need aspirations of being financially free, or apart of the 1% to benefit from passive income or investing.
Take inventory of your freedom values and how you can achieve them. While freedom numbers are overrated, they are a useful tool. Don’t stop there, find out what your freedom values are and use the two to create a future you can look forward to.