Attain Financial Freedom Faster Than You Think

How much money do you think you need to achieve financial freedom? Don’t know? If you do, where did you come up with that number?

You most likely know your annual salary figure or your take-home pay, but the number you really need to know is the cost of your current lifestyle.  Do you know how much money you spent in the last year?


F**k You Money

I had a professor in business school who started off one of our classes by calmly telling us we needed “f**k you money”. He definitely got my attention.

He advised us to calculate how much money we spent over the last year. Not what we thought we spent, but what we actually spent. Then he encouraged us to save one year’s worth of cash based on how we currently lived.

At some point in your life you’ve heard about creating an emergency fund to cover your living expenses for three to six months in case you lost your job. Keep this in mind, the average unemployed person during the Great Recession was out of work for ten months! Yikes!

Here’s the point my professor wanted to make:  You will experience a sense of financial freedom you have never experienced before when you have a year’s worth of cash behind you. It doesn’t take a million dollars.

Increasing your emergency fund (or as I now like to call it my “life fund”) to one year from the conventional wisdom of six months will give you more work options and greater confidence.   If you should find yourself in the unfortunate position of losing all your income at once, you’ll have even more time to find the best work opportunity for you.

Hands down it was the most valuable piece of information I got from my MBA.  Knowing that number can be more liberating than getting that small annual bump in your salary.


Financial Freedom Is Within Your Reach

There are different levels of financial freedom. Most of us think financial freedom is unattainable because we have confused it with being “independently wealthy” or having enough money so we never need to work again.

The first level of financial freedom is very attainable. Chris and I call this “building your runway”. Once you have a year’s worth of cash saved up, you’ll no longer be dependent on a paycheck. You’ll gain confidence to take more calculated risks in your career.

After I finished building my financial runway seven years ago, I decided to keep extending my runway. Once I started working for myself, I discovered I could save even more money more quickly. I can “buy” about one year of my life back now for every year I work.

I almost feel like I’m buying myself out of servitude. I’m no longer playing catch up. I feel in control of my destiny. I no longer feel the need to be “just be happy to have a job” even if my work is making me miserable. I now have a viable back up plan.

Today my wife and I can survive a decade without generating any income. Chris is currently building his runway.


How to Start Building Your Runway to Financial Freedom

Assessing your current financial state is the first step toward building your financial runway. Once you understand your outflow of cash, you can then start making the necessary adjustments for buying your freedom.

1. If you have any credit card debt, pay that down first.

Any kind of debt will weigh down your aspirations for financial freedom, but the worst is credit card debt. Before you start building your runway, do everything within your power to eliminate your credit card debt.

2.  Calculate the cost of your current lifestyle. 

For a quick snapshot of your annual spending habits, calculate the total amount of money that left your checking account over the last year. Add up all the debits from your checks, automatic withdrawals, debit card transactions and cash withdrawals.

3.  Identify expenses you can reduce or eliminate.

As you diagnosis your current financial state, look for ways to reduce your spending.   Look at your most expensive monthly bills and the money you spend on your worst vices (think alcohol, buying clothes or eating out). Use the extra money you saved to build your runway.

4.  Calculate your average monthly, weekly and daily spending.

Now determine the average cost of your lifestyle on a monthly, weekly and daily basis. Use these numbers to compare against discretionary purchases you might want to make. For example, the cost of my current lifestyle is approximately $175/day. I’ve been thinking about buying an iPad for around $500 or I could buy another three days of freedom. That’s seriously how I think about spending my hard earned money.

5. Get support if you can.

When you are making any kind of change in your life, you are much more likely to stick to your new set of habits when you have support. Find others who want to build their own financial runway like you.

Your financial freedom is close at hand! You can achieve it!

What’s the biggest challenge preventing you from building your financial runway? Leave your comment below!