Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty-pound ought and six, result misery.

Charles Dickens

The best thing money can buy is financial freedom because it provides contentment – which is surely the biggest life goal we all share?

Before I justify this comment let me explain what financial freedom is:

Having enough wealth to live the life you want to live whatever happens without having to work

Do not confuse financial freedom with financial security.

Financial security is having enough to keep the roof over your head, clothes on your back and food on the table. Financial security provides enough to exist and is the middle rung of the ladder on your journey to financial freedom. Financial freedom provides enough to live a great lifestyle while helping the next generations on their own journeys.

Financial freedom comes in two stages.

Stage 1 – Building wealth while we are working and earning.

Stage 2 – Maintaining wealth into retirement when you are no longer earning.

Key Steps to Financial Freedom – Building Wealth – Stage 1

The number one goal for everyone working today should be to achieve financial freedom.

Your human capital dictates what you earn, whether it be within your business or within your employment.

The best advice I can therefore give to younger people is to invest in themselves – to learn, empty pockets will not hold anyone back, but empty heads will. Having in demand skills will always ensure there is a payslip at the end of every month.

It’s also no secret that the number one trait all successful individuals share is a willingness to work hard, often very hard as Vidal Sassoon counselled:

“The only place where success comes before work is in the dictionary.”

So, the first key ingredient to financial freedom is investing in yourself so that your earning potential through your human capital will allow you to earn well.

However, excelling in your field does no guaranteed financial freedom.

This is all relative.

The footballer earning £30,000 per week, and spending £30,001 will struggle to achieve financial freedom when his playing days are over. The labourer earning £30,000 per annum and spending £20,000 per annum, and saving the difference for the next 20 years will retire financially free and be able to maintain his lifestyle (spending), unlike our footballer.

American actor Will Rogers said:

“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people that they don’t like.”

So, it is not about how much money you make, but how much money you keep and ensure this works very hard for you.

Budgeting is the second key to financial freedom, understand what you earn after tax, and then calculate what you spend – something we call ‘your number’, the amount you need to live the life you want to live.

If you are spending more than you are earning you have two simple choices, spend less or earn more.

Without surplus income it will be very difficult to achieve financial freedom.

Surplus income is destroyed by spending money before you have it. The car you want and you buy with an expensive lease, robbing your savings fund, the monthly blow out at the shops buying stuff you don’t need, robbing your savings fund, and your extravagant attempts to keep up with the Jones’, thus increasing your required number, robbing your savings fund and all prolonging your journey toward financial freedom, if it ever achieved, as these people often, at some point have to face an inevitable a drop in the lifestyle they have become accustomed to when their human capital is no longer valued or they wish to exit the Rat Race.

I don’t like debt, but recognise the value of ‘necessary debt’ to buy appreciating assets such as houses or fund a business venture, but taking out ‘unnecessary debt’ to fund stuff like cars and holidays is bad – avoid this where possible, and if you can’t, repay such debt as soon as you can.

In my long experience of managing client money it is that money shouts and wealth is secret, only buy what you can afford without threatening your pursuit of financial freedom.

But accumulating surplus income alone is not enough to ensure financial freedom.

The third key to financial freedom, is creating a financial cashflow forecast, that will help you to answer crucial questions such as:

• What does a great life look like?
• How much does this life cost?
• When do I wish to achieve financial security and then financial freedom?
• How much do I need to accumulate to achieve these goals?
• What return do I need to generate from my savings and investments?
• What are the risks and dangers along the road that can take me off track?

Remember, a goal without a plan is just a wish. You need to look into the future, create a feasible plan, one that is realistic and achievable, review this at regular intervals, be disciplined and don’t get side tracked by shiny things.The fourth key to financial freedom is making your money work hard for you – invest it wisely, avoiding the latest get rich quick scheme – there is no such thing, don’t be greedy, this is a get rich slow plan, but you will get there.So, do your due diligence, optimise tax allowances and mitigate where you are legally able, understand where you invest and be very patient.

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for ten years.”

Warren Buffett

But, before you commit to investment, remember that cash is king. Always, have a cash pot, your just in case emergency funds, that allows you to be a long-term investor, and have monies available to you and the family if it is ever needed – this is your sleep at night fund – and the amount is what allows you to sleep comfortably.

Finally, readers of my book, ‘Retireability’ will understand I am not suggesting you live the life of a hermit before you achieve financial freedom when you can run wild and start to live – no way am I suggesting or encouraging this. I don’t want you to watch the world go by from your office window until the day you achieve financial freedom, I just want you to be sensible and have great fun within your means along the way.

We all die, but we don’t all live. As Abraham Lincoln said:

“And in the end, it’s not the years in your life that count it’s the life in your years.”

Key Steps to Financial Freedom – Maintaining Wealth – Stage 2

So, you have achieved financial freedom, you have been a disciplined saver for most of your working life, you have enough – now what?

Now you must change your mindset.

You have accumulated wealth, now you must de-cumulate and spend your wealth otherwise your money will outlive you, you will die with too much, and you will leave your estate with a juicy Inheritance Tax liability to settle.

But hell, this is difficult especially if you have retired and stopped work. Your income may have halved or more, that money you have been diligently saving and logging each month on your spreadsheet you do not wish to see this fall – you are very cautious, a falling value on your spreadsheet would give you a real 3am moment, fear will strike that you have not got enough.

But this is exactly what you need to do – reigning in your expenditure to live within your reduced income, will mean you not living the life you want to live – what’s the point of financial freedom if you are not happy, and I agree, money does not buy you happiness, but it helps and so you must spend that capital and you must do it soon – time waits for no man, and your healthy time when you are at the peak of your ability to enjoy the fruits of your labour will not last forever.

And, if you cannot spend it, then give it away, to your loved ones direct or via trust or to charities that can benefit from your generosity.

But, and this is key, you can only do this if you are 100% certain that you will have enough, whatever happens to the world, house prices, inflation, the stock market, your health or a member of your families health, whatever happens you have absolute confidence that you will have enough.

So, you carry on with your financial forecasting and stress test this with a variety of scenarios – be reassured, because this, probably more than anything else will give you the contentment that you have earned though achieving financial freedom.

And planning does not stop with you – but your hard work will help your loved ones for years to come – when you are satisfied you have enough, it’s time to think about them.

Someone is sitting in the shade because someone planted a tree a long time ago

Warren Buffett

If you are on your journey, or about to start your journey toward financial freedom, or you may already be there and want to know how to maintain this freedom and perhaps and pass this on to your loved ones, then speak with me and the Henwood Court team.

And Remember:

When you feel goals cannot be reached, don’t adjust the goals, adjust the strategy.

Enjoy your journey.