| Real Life Strategies for Building Wealth

financial independence

While suffering with a stinking cold, I decided to read a book.

I’ve had this book on my Kindle for couple of months now. Between the daily hassle of working and the nightly hustle of blogging there wasn’t any time to read it.

What is the book, you wonder?

I’ve been reading ‘Money Master the Game: 7 simple steps to financial freedom’ by Tony Robbins.

Tonight, I’m not going to review the book though I may do it at some point. It is well worth reading despite the many pages of padding that I had to skip. (What I consider padding may be very useful to someone who has never read anything about personal finance before.)

What I’d like to share is an idea I do find very useful.

You know how there is a lot of talk around about financial independence?

There are also debates about what is it, when you’ve got there and whether someone is ‘retired’ (I suspect that I’ll never understand some young people’s obsession with early retirement; or any retirement for that matter, but each to their own.)

I may have a problem with ‘retirement’ but John and I have achieved financial health and are working towards financial independence; which in my book means that by October 2018 we’d like to be in a financial position where I don’t have to be employed if I don’t want to be.

To achieve this, we used TMP retirement calculator and worked out that to be able to do what we wish to do we need the staggering amount of £2.5 million (or the equivalent which is £10,000 passive income per month).

I am a very brave person (some may say that I’m slightly foolish when it comes to courage). Even I find this number daunting.

We have slightly less than four years left and slightly under £100,000 saved and/or invested. (John claims that we are still on track but we have to find some really hot investments. Astonishingly, in 2014 we had £10,444 passive income about which I’ll tell you some other time.)

Reading Tony Robbins’ book has given me the will to continue.

Tony gives a lot of very useful messages in his book.

One of these is:

‘If you want your life to be better, you have to become better.’

Another one is that there are different degrees of financial independence.

These are:

#1. Financial security. This is achieved when you have sufficient passive income to cover the very basics in your life like the rent (mortgage), bills and basic food.

#2. Financial vitality. At this level of financial independence, your passive income can allow for more things like clothes, going out and having fun, and basic holidays.

#3. Financial independence. This is the level where your passive income is sufficient to allow you to have your current quality of life.

#4. Financial freedom. At this level of financial independence you can up-step your lifestyle to the one you desire.

#5. Absolute financial freedom. This is the level where money stops being an issue and you can do anything you want.

You see, very few people will get to the 5th level; this of absolute financial freedom.

Some will get to the 4th level.

Everyone can get to the 3rd level of financial independence.

Do you know why reading about these levels of financial independence gave me the will to go on?

Because I did put numbers to the different levels. (It is a very good exercise and very useful to keep you on track; so get a pen and start working out your numbers.)

Here is what I figured out (all numbers are of income after tax).

#1. Financial security. For financial security we need passive income of £24,360 per year. We are above that today.

#2. Financial vitality. For this level of financial independence we need £38,400. At the moment, we are over-shooting this one if I include our advertising income (which is not entirely passive).

#3. Financial independence. For financial independence we need annual income of £48,000. At this moment, we fall short of that by approximately £4,000.

#4. Financial freedom. This is our programme maximum and you know we are rather short here.

#5. Absolute financial freedom. We have not even allowed ourselves to dream about this one!

Now you see why I’m encouraged. We are very close to financial independence today. The way we are going we’ll certainly be there in four years’ time.

This means that even if we don’t get to financial freedom (our £2.5 million plan) I’ll have a choice!

Where are you on the way to financial independence?