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We might be familiar with the saying that financial freedom will make us live our lives freely without worrying about finances. Have you ever wondered how much money is required to have this freedom and what to do to get financial freedom? Let’s find the answer together with ACU PAY.
Financial freedom means that we have enough money to live a happy life and can spend that money until the end of our lives without having to work or continue working with other goals such as working on what we love and traveling without worrying about money anymore.
It’s an individual answer. Try asking yourself three factors: the age when you want to have financial freedom, monthly expenses after financial freedom, and finally how long you’re going to live and how would you like to live your life freely. Then, calculate your financial freedom according to this formula.
“Amount required for financial independence = Amount required per year x number of years x number of inflation”
It means that if the monthly cost is usually 20,000 baht per month or 240,000 baht per year, and you plan to retire at 50 years old and live until you reach 80 years old, which means that when you quit your regular job, you have to have the financial freedom that has to save for a total of 24,000 baht x 30 = 7,200,000 baht.
Also, we have to calculate the inflation rate which is normally at the average of 2-3% which is 7,200,000 baht x 3 = 21,600,000 baht. You may think this quite too much but take a look back on 20 years ago, when the price of curry and rice was 20 baht but the price went up to 50 – 60 baht per plate in the present and tends to go up in the future. Thus, it is recommended to have more which is better than less.
It can be started with these 5 steps.
Let’s start by observing how money is spent each month, what the expenses are, which is necessary and which is not, or how much debt you owe to repay. This step helps to see the leakage of spending behavior. To seal those leaks, you should reduce spending by no more than 50% of your income to make money for financial freedom in other steps.
After deducting monthly expenses, everyone’s first savings should be an emergency fund to prevent unexpected incidents. This emergency fund should be at least 3-6 times their salary or have health insurance or life insurance to get insurance to cover the damage or pay for their medical expenses.
Emergency funds should be kept in a high liquidity place, which can be withdrawn when necessary, but still yields good returns. We recommend high-interest savings accounts. If you want to share some money with financial freedom in the future, you can choose to deposit it with a tax-free fixed deposit account. Highlights of the tax-free fixed account are that we can deposit the same amount of money every month and will get interest once the maturity is met such as 24 months or 36 months, which helps with the discipline of saving and tax-free.
When there is an emergency fund, at least 10% of the remaining funds should be used to grow, or “passive income,” through investment to prevent inflation that can reduce savings each month. Most importantly, you should invest in an acceptable risk such as debentures, mutual funds, and investment should be studied further.
According to the Covid-19 crisis, there is uncertainty in all occupations. Having multiple income channels will help sustain the risk and increase additional income from regular jobs. If you can’t find a supplementary career, you can invest in your own knowledge first so that you can build more knowledge into your career.
Lastly, financial freedom can’t be achieved without discipline, patience, and action. The sooner we start doing it, the more savings called compound interest will go up. Starting sooner is better than doing nothing. Also, it’s important to study investment first and foremost to understand every time before you start investing. Financial freedom is not out of reach!
