Financial Freedom Roadmap: The Final 2 Hidden Destinations Revealed – 5 Minute Formula

Financial Freedom is thought of as the coveted holy grail of financial well-being and rightly so. Who wouldn’t want to be in a position to exercise the choice of being financially free enough to never have to work again to earn money? Sounds good to me anyway!

Now, if I asked you to quickly write down on the back of a napkin how much money you’d figure you’d need to be totally financially free, it would be fascinating to see what number you’d come up with. It’s actually a pretty tough exercise for most people to do with any level of accuracy. Not to worry, help is at hand with this 5 minute formula!

In a previous article, we used this 5 minute formula to work out the exact sum of money you’d need to reach the first 3 destinations on the road to wealth creation 1. Financial Protection; 2. Financial Security and; 3. Financial Independence). Here we’re going work out exactly how much money you’d need to reach the final 2 destination: Financial Freedom and then just for the hell of it, Absolute Financial Freedom. Here goes, hang on to your hat!

1. Financial Freedom

You will have achieved it when you have accumulated a sufficient critical mass of capital to provide enough income for you to live the lifestyle you desire (accounting for inflation) without ever having to work again for the rest of your life. The keyword here is ‘desire’. This is what differentiates being financially free from being financially independent, which is defined more by what you ‘require’ to live reasonably comfortably.

In essence, this would include having and enjoying all the luxuries in life such as:

Second Home in the Sun ($700,000) – $3, 500/month
35 Foot Boat ($150,000) – $1,500/month
Mercedes Benz ($100,000) – $1,000/month
1 Luxury Holiday ($12,000)- $1,000/month
Harley Davidson ($20,000) – $400/month

The additional monthly unearned income needed for these luxuries comes to $7,400/month i.e. $88,800/annum. Therefore the total cost of being financially free is the $51, 600/annum figure needed to achieve Financial Independence (which we worked out in a previous article) PLUS an additional $88,800/annum = $140,400/annum

Again, using the benchmark of an annual 8% return on investment would mean you’d therefore need a critical mass of capital amounting to $1, 755,000 in order to be financially free. So, as you can see it’s a decent sum of money but I believe within the realms of possibility for anyone who sets about achieving it and re-thinking their approach to income generation and financial planning.

2. Absolute Financial Freedom

When you think absolute financial freedom, think total rock star lifestyle! You can pretty much remove any financial limitations and pick up your air guitar for this one!

You will have achieved this financial level when you can pretty much do whatever you want, with whomever you want, as much as you want – without ever having to worry about money or work again.

So, assuming we’d still like to keep everything we have/do from our list, we now add all the new dream capital items we’d love to have that are not in our previous list. For example:

35-Yacht ($500,000) – $5, 000/month
Ferrari Testarossa ($250,000) – $2, 500/month
Piper Cherokee 140 or Cesna 172 Private Plane ($30,000) -$3000/month
Own desert island ($7,000,000) – $14,000/month

Additional monthly unearned income needed for these dream luxury items comes to $21,800/month i.e. $261,600/annum. Therefore the total cost of absolute financial freedom is the $140, 400/annum needed to achieve Financial Freedom PLUS an additional $261,600/annum = $402,000/annum

Again, using an annual 8% return on investment would mean you’d need a critical mass of capital amounting to $5, 025,000. So, by today’s standards it’s a very significant sum of money/capital. In order to have built up this level of personal wealth, you most likely will have become a noteworthy business owner and quite a sophisticated investor i.e. you’ll be a total money master!

Conclusion

So, there you have it! Financial Freedom and Absolute Financial Freedom defined in terms of an absolute sum of money required each year. So, now you know EXACTLY what it’s gonna take for you to eventually quit working for money and finally have money working for you; to escape the daily grind and retire to Margaritaville…should you want to! Check out my other articles on Personal Finance, Business and Wealth Creation tips to help you reach the financial freedom finish line…fast!

7 Steps to Financial Wellnes

Financial wellness is the art of managing family income, investments and expenditures for optimal living. The process of becoming aware and making conscious choices toward financial independence is foundational for financial wellness.

Learning new skills and innovative strategies for maximizing cashflow is a goal many families must commit to before advancing toward financial wellness. The concept of financial wellness is non existent in many households. However, for families who choose to experience financial freedom, the following steps will empower and bring new insight to your family.

Step 1# Give

Giving is the first step toward financial wellness. This is your financial insurance for creating opportunities to get wealth. Giving is the same as a farmer who plants seeds seasonally so as to reap a harvest in another season. A farmer who desires to reap a harvest of apples in the next season must plant apple seeds. Planting orange seeds and expecting apples is INSANE.

A family with a desire to increase their household income must give (WORK) the use of their talents and abilities to those who could benefit. Planting your talent into an organization or a company is the fastest way to bring increase to your family income. There is no hope for financial increase when a family refuses to work.

Volunteering is an excellent way of planting a seed for the perfect job opportunity. Many organizations would love to benefit from your skills and dedication in the empowerment of your family. Visit volunteermatch.org to find an opportunity in your community, or contact us to assist with our monthly feeding of families in need in downtown Los Angeles (SKID ROW). Helping someone start their own business is another excellent idea for positioning your family for increase.

Without understanding this FIRST STEP in financial wellness, it’s safe to say that the following steps will not apply to you. For those looking for results that work, please continue reading.

Step #2 Prepare to Receive

Preparing to receive is the second step toward financial wellness. Once your family has already planted their seeds by the giving of their talents, ideas, love and kindness to others, WATCH OUT. The harvest has no choice but to come. Not being prepared for the harvest will produce family stress and anxiety for those who did not plant the correct seeds on good ground. An excellent way to prepare for the harvest is to create a 12 month financial plan on how you will spend the increase before your financial harvest arrives.

Step# 3 Your Measurement

It is impossible to receive a financial increase without the planting of your talents and skills. There is no job or business on this planet who will pay you to do nothing. Therefore, your measurement of financial increase is connect to the amount of QUALITY work you give to others. If your quality of work was good, your measurement will be good. If your quality of work was mediocre, your financial return will equal the same. To maximize your measurement, always do excellent work at all times.

Step #4 Pay Back

Pay back is a category in financial wellness that has the potential bear fruit. Based on your quality of work invested into helping someone else grow their business, there is an automatic release of promotion and pay increase that flows without any extra effort on your part. To position your family for a larger pay back, invest time to develop your skill and talent to another level.

Step #5 Multiply

Multiplication is a form of financial increase that is shaken together and demands attention. At this stage of financial wellness your family begin to enjoy their financial increase dimensionally. Developing your family’s skills and talents to another level raises the financial bar and positioned your family to experience greater financial success. Staying at this level demands enrolling in classes for improving your skills and connecting with a core group of associates that empowers your family at this level.

Step #6 Overflow

Living in the overflow is operating with more than just enough money to pay your bills. This surplus and abundance allows your family through the ability of multiplying resources to build schools, fund research for cancer and sponsor programs that provide job training for unemployed families the community. It is in the overflow that many families begin to establish themselves as a financial resource for others. Operating at this level effectively will take coaching and the development of new skills that prepare your family for leading the community responsibly.

Step #7 Favor

Favor is the ability to experience exceptional kindness and generosity from others effortlessly. Receiving preferential treatment in every area of your life is a strong indication that you and your family have advanced to highest level of financial wellness. This level of financial wellness is where no eyes have seen and no ears have hear what is about to happen for family.

Operating at this level is an experience that surpasses all understanding. Do not try to figure it out! Houses, cars, boats, planes, and special invitations to paid VIP luncheons/dinners are some of the benefits that follow a family that is drenched in the excess that come with operating in favor.

This level of financial wellness is not for sale. Favor is a natural progression for families who start by giving through investing time and effort to help others succeed. By helping others to succeed, your family will benefit several times over without having to sell your soul for it. Enjoying and maintaining this level of financial success demands helping others achieve success and rejecting low level thinking that encourages competition and greed.

Understanding the Need For Financial Education (Or Growing Old and Poor on Lottery Tickets)

In today’s world of advanced technology there is no shortage of information on just about any subject or topic you want to explore. Hard copy magazines can be bought in any supermarket or news agency on any topic from ‘how to plant tomatoes’ to ‘how to build an aero plane’. The internet is now the most used piece of technology for sourcing information with over 1.6 billion users worldwide. If it’s not on the internet then it hasn’t been discovered yet.

For most of us financial freedom and prosperity are challenges that we all seek in our lifetime. It’s the reason why so many of us spend money on gambling and lotto around the world in the hope of achieving that dream without the pain and effort needed to get there under our own steam – and yes, I’m guilty too of trying to fast track my way to wealth and glory. In fact, according to an unverified article found on the internet $224.3 billion was spent on legal lotteries throughout the world in 2007. $166 billion of that figure was purchased online. I think that’s called something like wealth redistribution. The fact is only a few out of millions get to share in the wealth. The rest of us will grow old and poor buying lottery tickets. This emphasizes the need for financial education.

Saving for retirement and enjoying a more prosperous lifestyle along the way is not impossible to achieve but it does require an understanding of the need for financial education. As a 50 something year old who has spent a lifetime in financial services (I like to call it salt and pepper experience!) I still come across too many examples of people who do not understand the need for financial education. Only the other day I was speaking with a 21 year old apprentice carpenter who believed that superannuation (retirement savings) was an imposed burden on his earning capacity and belonged to the ‘government’ until he retired. This is a common belief by many young people today and surely points to the failure of governments and older generations to pass on and educate people about the need for financial education.

The need for financial education is not limited to just the younger generations either. It’s why more than 95% of the currently retiring baby boomer generation will retire on less income needed to support a comfortable lifestyle. With the advances in technology and information, particularly the internet, everyone has the opportunity to become financially educated. That’s why I called my blog ‘Wealth Happens Online’. The internet is not only a place where you can learn about every aspect of financial education from saving for retirement, investing in shares/managed funds, property investment, a variety of alternative investments and business opportunities but it’s also a place where you can source information on the need for financial education.

Understanding the need (or what your goals are) is the first step to meeting the challenge to financial freedom and prosperity. Since the GFC hit, the world has become wary of financial advisers and others who give advice on investments. If you are compelled to use the services of a financial adviser rather than sourcing your own information on the internet then look for an adviser who understands the need for financial education before ‘selling’ you on investments. No matter what your age, understanding the need for financial education is the safest and surest way to financial freedom and prosperity. The alternative is to grow old and poor on lottery tickets.

Taking Control of Your Financial Destiny – Sound Financial Advice For Women

2009 was a whirlwind for most of us, but it never ceases to amaze me when I meet women who are totally clueless about their household finances until an emergency has arisen. While everyone should view this recession as a “time to re-engage”; women have a much stronger obligation to take control of their own financial destiny.

As if we are not already overburdened with balancing a career and family life; understanding the financial industry and how it affects our daily lives is a necessity for all women. When we sit idle and put our financial lives on automatic, it’s equivalent to financial suicide.

Case in point, one of my clients had no idea her husband had been paying their mortgage for the past three years with credit cards. He never told her he was laid off from work and accepted a new job earning only half of his previous corporate salary. He was responsible for paying all of the household necessities and her salary was designated for the “household luxury items”.

Not knowing about their financial position, she continued to spend her salary without putting any savings away. She was devastated when process servers rang her doorbell to serve them both with a foreclosure complaint.

I’m sure many women would proclaim that this could never happen to them, but it’s far too common. The next situation demonstrates another widespread problem women are faced with today.

Mrs. Anderson decided to retire after thirty years as an elementary school teacher. She planned to travel and enjoy a leisure life. Unfortunately, Mrs. Anderson’s monthly retirement check wasn’t enough to cover her bare necessities. Her retirement account was slaughtered by the financial markets. After reviewing her retirement account, it was heartbreaking to know that this could have been avoided.

Mrs. Anderson’s retirement account was depleted because no one was managing her account. Yes, she had an advisor, but Mrs. Anderson’s account wasn’t monitored or invested to match her goals and objectives since her husband’s death ten years prior. Mr. Anderson was the Financial Manager of the household and Mrs. Anderson had no interest in financial matters.

Again I ask, what is wrong with this picture? After spending her entire life being everything to everybody, Mrs. Anderson’s quality of life has been altered because of lack of knowledge. I can present endless scenarios, but my goal is to shine a light on the solutions.

Moving forward, all women must have a stronghold on their financial future. The American financial system as we knew it, no longer exists. Personal Financial Management should be the job of both heads of household. Think about it, what happens if there’s an emergency, and the co-pilot can’t fly the plane?

If you’re the sole head of household, the responsibility is even greater. It’s impossible to effectively operate your household, and raise financially astute children if you have no knowledge yourself. Take charge of your financial destiny by equipping yourself with the proper tools.

Seek out financial literacy training that leads to Financial Aptitude. Financial Aptitude will enable you to take personal responsibility for managing your finances, make investment decisions that match your short and long-term needs, select the right financial consultants and effectively plan for retirement.

Reasons For Financial Problems

Most of us know when we hit a financial disaster, usually we can even trace the beginning of the process that led to the financial failure, but the problem seems to be the fact that some people keep repeating the mistakes, or adapting new problematic methods of trying and solving problems.

The wise financial planner would first consider his own strong and weak points before making financial decisions and would draw conclusions for the experiences he had in the past, the few points that ultimately lead to financial disasters that I will discuss here are very basic and natural, yet many people do not practice the least amount of caution when making plans.

The first and most prominent problem with bad financial planning is that the planner has no financial education, in this case I would strongly advise seeking professional help. Most of do not have formal financial education, and many of us do not understand the financial basics that rule the markets, other do not want to go into these calculations, but all these groups should start by admitting that they do not have the knowledge of dealing with financial planning and look for someone who does. The great benefit of listening to advise of experts is that it teaches you things, the approach to financial planning, the basics of a new financial plan and much more, it is very possible that in a few months you will be much more educated and better informed in a way that will allow you to start making your own calls.

The second problem is making decisions and planes letting other people manage you finance for you, and I don’t mean letting you professional financial planner but friends, neighbors and family. Even though these people have the best intentions, it is very clearly your own responsibility to take care of your personal finance, and as much as it is unpleasant to make financial plans and take care of your personal finance it is a fact of life you must practice.

The third, and last mistake we are going to discuss is choosing the wrong kind of financial advisor, some people are tempted to let the wrong kind of people manage their finance situation, this includes insurance experts, tax experts and other financial experts of all sorts. It is important that you find a person that you have good communication with , that understands you and what financial help you are seeking, and that this expert be an expert on the issues you need help the most, do not let personal relationships, family connections and business relation dictate the financial expert you use, it is of extreme importance that this person is as close to being perfect for you as possible. The best thing to do is to look for a person that works in a financial office and makes his money by advising and managing personal financial accounts, someone that has been around for long and that will have the experience to guide you through the processes.