Financial Freedom Planning Guide

In this post, I want to document a simple plan to determine how financially free we are and help us get on track to financial freedom.

This comes mainly from a video that an entrepreneur friend in Thailand made to simplify this process of reaching financial independence.

Conventional Definition of Retirement: When you leave your career permanently to stop working forever, usually because you are old, disabled, or hate your job.

To me the way society sees retirement is sad. 

They want us to work until we are not useful anymore and treat our work and jobs as just something we have to do until we cannot do it anymore in hopes that when we can’t do it anymore we will have accumulated enough money to get by without working.

What’s even more sad is when people retire and build enough wealth to live without working but then cannot do anything because they are old, out of shape, and sick.

What the hell is the point? 

Society has created a trap if we follow what a typical cycle is.

True Definition of Retirement or Financial Freedom: When the passive income from your investments pays for your lifestyle at your desired lifestyle level allowing you to work on what you want regardless of your age.

This means someone can retire at any age if they make enough money and funnel it into the right investments that generate the income needed to live the lifestyle they want.

Financial freedom allows people to work on only the things they want, not things they have to do just to get by. It doesn’t mean you will never want to work it means you have the freedom to determine what you do.

You can focus on work that is more purposeful or that you are more passionate about.

How to Determine Your Financial Freedom Number 

First, different levels of financial wealth determine what your number is based on the lifestyle you want to live.

Below are the levels of wealth:

• Financial Security– Rock bottom is needed to sustain your survival. Rent/mortgage, food, utilities, transportation, insurance.
• Financial Vitality– Added expenses for things like entertainment, shopping, fine dining, ect.
• Financial Independence– Living an equal lifestyle to what you do currently with everything you need and want to have comfort.
• Financial Freedom– Having whatever you want without having to work for the rest of your life. Your dream life that you don’t have to hustle for.
• Absolute Financial Freedom– Whatever you want, with whomever you want, as much as you want.

We can use a simple app called Money in the app store to calculate these numbers.

Input your numbers in the app for each stage and then it will give you both a monthly and yearly expense number so that you can determine the amount of money you need in investments at a 4% return rate to be covered for each stage.

Annual safe withdrawal rate= Invested Net Worth x 4%

Example: $1,000,000 in bank x .04= $40,000 per year withdrawal or $3,333 per month passive

To find what you need in your investment portfolio based on your monthly expenses just multiply your expenses x 12 then / .04 

Example: $7,000 x 12 / .04 = $2.1 million

Here’s a chart showing what my income levels are for the US and Thailand:

On our journey to financial freedom, the numbers above are our map. We can determine which numbers we want to hit and then document these in our goals so we see them each day.

For me, the following are a few milestones:

1. If I were living in Thailand hitting the $300-$600k in investments mark would enable me to be financially secure
2. If I continue to live in the US I would have to hit the 1.5m-3m mark to become financially secure

I like to spend most of my discretionary income on healthy food, eating out, gym and wellness expenses, healthcare, and a few experience events with friends.

How Do You Get to Financial Freedom

To get to financial freedom 3 components play a role.

1. Making money from your career
2. Saving 
3. Investing 

Making Money

Making money comes through your job or business income.

And one important metric you need to have a handle on is your effective hourly rate.

Effective Hourly Rate= How much money you make / How many hours you work

Your effective hourly rate helps you to determine where to spend your time. You should focus on doing more jobs and tasks that are at your hourly rate or greater than it. 

If there is a task that costs below your rate you should outsource it.

To determine your EHR you will need to track your working hours and divide it by the amount of money you made during that period. 

Investing

A balanced investment portfolio is necessary to kick off the 4% annual return.

Here’s an example of a portfolio:

• 17% cash
• 20% real estate, single-family homes, kick-off passive income monthly
• 37% stock market, a portion using robo-investing, and some individual stocks
• 9% crypto or riskier investments
• 17% off market private investments 

Saving

The bottom line is to spend extravagantly on things you love and cut mercilessly on things you don’t.

Focus your savings on getting rid of things you don’t like and then enjoy spending on the things you do like.

Savings enable you to funnel money into your investment account so that you can grow that account until it reaches your target lump sum amount to meet your annual and monthly 4% withdrawal rate.

Conclusion

In summary, the most important things are finding and sticking to your financial number goal over time, determining your effective hourly rate to maximize the productivity of your time so you can grow your portfolio the quickest, and finding the best opportunities to help you speed up this process.

One important thing to note is that depending on your career and skills there will be different timelines to these goals for everyone. While one person who has skills in a profession that doesn’t pay as well may need to be more frugal another person who has skills in a career that pays well will get there much faster.

The key is combining your passion with the best opportunity to make money in something that you can sustain over the long run.