How Will You Become Financially Free?

Posted by FrugalPinoy on Jun 7, 2011 in Money and Psychology | 0 comments

In April, I ran a survey asking Frugal Pinoy readers “What is your #1 financial goal?”. Most of the answers were “financial freedom” or “to be financially free” or “financial independence”.

Image by jdhancock from Flickr

While almost everyone in the world wants that, we all define it differently. To reach this “financial freedom” or “financial independence” that we’re talking about, we need to know how to objectively quantify it. And this will depend on your definition.

To make it easier, think of your definition as a checklist. What financial goals much you reach before you become financially free? Here are some questions to consider:

• How much should you have in emergency funds to not worry about financial emergencies?
• How much should you have stashed away in retirement investments? How much is their historical average growth? Do you think you’ll have enough to live comfortably when you retire?
• How much should you be earning each month to fulfill all your financial obligations? How much do you need to live comfortably and pursue all your hobbies and other leisure activities?
• Do you have any debt? If so, have you developed a plan to repay all of your debt and stay debt-free?
• Which stage of personal finance are you in? Which stage do you want to be in within 6 months? A year? How do you plan to accomplish this?

Don’t be afraid of being as specific as possible. Include numbers such as: “I must have at least P120,000 in emergency fund savings” or “I should be earning an additional P20,000 monthly from my side business”. The more specific you are, the easier it will be to know the steps you have to take to reach these goals.

So let me ask you again, “What is your #1 goal that will help you reach financial freedom?” Answer the completely anonymous survey below to share even just one criteria of how you define financial freedom.

Day #1 : Define Wealth and Financial Freedom

Posted by FrugalPinoy on Nov 20, 2009 in 25 Days to Healthier Finances | 5 comments

For the next 25 days, I’ll be posting one actionable item per day for myself and you, the readers of Frugal Pinoy.

It’s best to start off these daily actions with a definition. How do you define healthy finances? Wealth? Financial freedom? We need to know what we mean by these words if we want to achieve them.

Today’s Task: Define wealth and financial freedom.

If your definition is a specific number, why that number? Why 10 million pesos as opposed to 15 million? Is your definition based on income? Savings? Or is it a specific lifestyle? Properties such as real estate and businesses? Or is it just a state of mind?

It helps to write the definition somewhere – it could be your blog, journal, financial notebook, etc. Writing this down makes it more concrete.  Also, you can easily refer to it in the future. Remember to be as specific as possible.

As for me, here’s the definition I’ve come up with: both wealth and financial freedom means that I won’t be worrying about my family’s finances, since I know that we’ll be okay. I can only do this if the following criteria are met:

1. I have no debt whatsoever.
2. I have an emergency fund worth 1 year of living expenses.
3. I own a small house with a garden.
4. My monthly passive income covers our monthly living expenses.
5. I have a healthy “retirement” fund. (Since I’ve never been employed in the traditional sense, my definition of retirement is the time when I’m no longer physically and mentally able to work as a writer – I plan to keep working as long as I can.)

Right now, only criteria #1 is met in full. Although I live in a house, it is legally in my mother’s name. Still, I am already saving up for a house of my own. I’m halfway through #2. As for my retirement fund, it’s still small but I’m working on building it and keeping it in stronger investments (it’s still in a savings account).

How about you? How do you define these words?

Image by winjohn from sxc.hu