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How to Figure Out Your Financial Freedom Number

I recently had the pleasure of speaking to Bushy Martin from Know How Group on the Full Production podcast. Bushy is a specialist in property investment strategy and he has a particular focus on working with folks in the mining industry.

Bushy’s freedom numbers approach is a quick process he takes his first-time clients through so that they can get a clear understanding of what they’ll need financially to live the life that they want in the future, and what they’ll need to do to achieve it.

It’s a great exercise just for getting your head clear and your investment strategy focused. There are four components to calculating your freedom numbers.

What’s Your Lifestyle Number?

First up, you need to determine your lifestyle number. The key to this is working out exactly how you want to live down the track. A simple exercise to do this is to think about what your perfect day looks like. How about your perfect week? Perfect month? Perfect year? You get the idea.

It’s then just a matter of working out what that costs per year. That’s your lifestyle number.

If you want a half comfortable lifestyle for yourself and your partner, at the point when you don’t have to work anymore, have a holiday each year, a decent car and be able to eat out a bit, you’re going to need about $120,000 a year to do that. In this case, your lifestyle number is 120,000.

What’s Your Nest Egg Number?

Now we’re going to need to generate this income from some form of investment, whether that’s property, shares, whatever. As a rough estimate let’s say that most common asset classes will generate a return of around 5% per annum after tax. That means we’ll need about $2.4 million dollars of income-producing assets to achieve that $120,000 income level per year.

Keep in mind, this doesn’t include your own home, because it doesn’t give you an income, it actually costs you money.

So if 120 grand is your lifestyle number, then 2.4 million is your nest egg number.

What’s Your Timeline Number?

Next, it’s a matter of working out how long you want it to be before you’re in that position of financial freedom. Let’s say that’s 20 years. So then your timeline number is 20.

Ta-da! Your freedom number

To actually achieve that $120,000 per year income and $2.4 million nest egg number, in property terms, over 20 years, you only really need two good quality rental properties.

So your freedom number, in this case, is two. If you want to achieve the same thing in say 10 years, you’ll need to double that. Your freedom number is then four.

This is a fairly simple example, but it does provide a useful framework for thinking about how you want to live in the future and your investment strategy for getting there. If you want to know more, contact Bushy and the team at the Know How Group and they’ll be happy to help.

Listen to my entire conversation with Bushy here.