How to achieve a worry-free state of financial freedom

Financial freedom is commonly used to describe the condition where income from your accumu¬lated wealth is sufficient to cover your expenses - indefinitely. In this enviable situation, you will no longer need to work to earn money but to simply pursue jobs for the satisfaction that they bring. Sure, many job counsellors will advise you to find a job you like, but truth be told, more than a few of us have not yet found our dream job and work because it provides a salary.

As already mentioned, a key component of the financial free¬dom equation is expenses. The amount of outgoings will depend on each individual's lifestyle. If your goal is to live the high life with spare cash to fulfil your every whim, finding the road to financial freedom may prove more elusive.

By setting your sights slightly lower, you may achieve your goal of financial independence more easily. No doubt this will probably mean that you'll likely need to write off dreams of having that private jet.

Suppose some¬one has settled on a certain lifestyle which, say, requires expenses of Bt20,000 per month. How much would that person need to save to be able to enjoy this amount of cash flow from his accumulated wealth indefinitely? Assuming an interest rate of 5 per cent, the amount he/she would need would be Bt4.8 million (multiply 20,000 by 12 and divide the result by 0.05). Now, this is a pretty tall order. In fact, if you saved Bt5,000 a month it would take over 33 years to reach that level of savings!

Unfortunately, under this sce¬nario, by the time you achieved financial freedom, you would already have reached retirement age.

The way to shorten the time it takes to reach financial freedom is no secret. You simply increase your income or lower your lifestyle goals. What is astonish¬ing for a lot of people, however, is how much a slight adjustment can substantially impact the time it takes to reach your savings goal.

Let's return to the earlier exam¬ple. Assume the aforementioned person tries to accommodate his lifestyle and still live on Bt15,000 a month, Bt5,000 less than the usual Bt20,000 target. If he/she manages to do so, they can now achieve financial freedom in a mere 19 years. In other words, you would have to work 14 years less than you would otherwise had to!

Fourteen years is a lot of time saved. How is this possible? The answer lies in the wonders of compound interest. The money that was saved earns interest and the interest received would earn more interest year after year. Over time, the amount saved would grow exponentially. What's the catch? We all know that trying to impose limits on your lifestyle is not easy. A muchpreferred alternative would be to try to make more money. Then again, you'll need to make sure that your lifestyle expenditure does not expand more quickly than your wallet does.