A friend asked, how much money is needed to achieve financial freedom?

In fact, there is no completely standard answer to "how much money is needed for financial freedom."

This is related to an individual's lifestyle needs.

How much money is needed for financial freedom: it depends on the needs.

For example,

- Some people think that living in a luxury mansion every day, driving a luxury car, riding a yacht, and flying on a private jet is what financial freedom is all about.Some people believe that financial freedom can be achieved when they can go to the supermarket and buy whatever they want without considering the price.

There is a significant difference in the financial freedom perceived by these two groups of people, and the amount of money needed also varies greatly.

There was an amusing post online that categorized financial freedom into several different levels, such as market freedom, restaurant freedom, travel freedom, medical freedom, etc. The basic market freedom is achievable for most families.

The higher the level, the more money may be required.

4% RuleSo, we need to first analyze what level of financial freedom we hope to achieve, and then calculate the actual expenses.

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For example, a family with an annual expenditure of 400,000.

Then, using the 4% rule, it can be simply calculated that the amount needed to achieve financial freedom is 10 million (400,000 / 4% = 10,000,000).

That is to say, if a family needs an annual expenditure of 400,000, and if they have accumulated 10 million in assets, then extracting 400,000 from it each year for living expenses can be sustained in the long term.

How to allocate assets

Please note that the translation provided is a direct translation of the text and does not include any financial advice or endorsement of the 4% rule, which is a common rule of thumb in financial planning but should be considered with caution and in the context of individual financial circumstances.Aren't you worried that one day you'll run out of funds to withdraw?

Actually, this money isn't stored in cash form but needs to be allocated to assets. Assets appreciate in value over the long term, which can compensate for the portion that is withdrawn.

A commonly used strategy is to allocate stock funds and bond funds according to the "100 minus age" rule.

For example, for an investor with an average family age of 40,

(1) According to the 4% rule, one would need assets of 10 million to achieve financial freedom.(2) With an asset base of 10 million, one can:

- Allocate 60% to stock funds, such as actively managed advisory portfolios, index-enhanced advisory portfolios;

- Allocate 40% to bond funds, such as 365-day advisory portfolios and other fixed-income fund varieties.

For the portion allocated to stock funds, it is also advisable to invest during periods when the market is relatively inexpensive, such as during 4- or 5-star market ratings.

By buying at lower prices, the risk of facing a market downturn is reduced, and when the market eventually rises, the potential for higher returns is greater.

(3) As the age of family members increases, the proportion of stock funds will also gradually decrease.

However, it is generally not reduced below 30%, which means maintaining a minimum of 30% allocation to stock funds.(4) If you need money for daily expenses, you can also withdraw from bond funds first.

This way, you construct an asset allocation plan.

In the long run, as long as the rate of asset appreciation exceeds 4%, you can continue to withdraw without worrying about running out.

Ways to Achieve Financial Freedom

So, how should you accelerate the pace of saving money to reach a state of financial freedom?Approaches can be taken from both increasing income and reducing expenses:

▼ Saving Money

To save more money, you can increase the savings rate.

The proportion of money saved out of income is called the savings rate.

For example, if you earn 10,000 yuan per month and invest 2,000 yuan, the savings rate is 20%.

For most ordinary people, a savings rate of 20% is quite appropriate.You can set aside this portion of funds as soon as the salary is received to prevent yourself from spending it recklessly.

If there is a surplus, the savings rate can also be increased to a higher level.

For example, the global investment master Templeton, when he was young, could even achieve a savings rate of over 50%.

However, it is important to act within your means and avoid blindly increasing the savings rate to the extent that it affects the quality of life for yourself and your family.

▼Rational Consumption

Be more rational when consuming and avoid impulsive spending.How can we reduce unnecessary spending?

There is a clever trick: "Put a life label on items."

Before making a purchase, calculate how long we have to work to afford it.

For example,

- A cup of Starbucks coffee = 3 hours of life;

- A coat = 300 hours of life, and so on.Thus, one can clearly understand the cost of each expenditure. Then, ask oneself if it's worth it?

The answer comes immediately.

In fact, this approach does not mean being stingy with oneself.

Instead, it's about figuring out what is most important to oneself.

In recent years, a method has also become popular in Europe and America:

Work and accumulate assets in economically developed areas. Then, move to areas with a lower cost of living to achieve financial freedom earlier.

For example, some Western office workers work in economically developed areas, but after retirement, they settle in cities in Southeast Asia and other places with nice scenery and a lower cost of living.There is a similar trend within the country.

Online, there are also bloggers who specialize in finding cities that are not very well-known but have a pleasant climate, low cost of living, and are comfortable to live in.

With a lower cost, one can live a better life~

After achieving financial freedom, one can choose to do what they want.

Financial freedom is something we all desire to possess.However, achieving financial freedom does not mean that one should do nothing and just lie flat.

After financial freedom, we have more choices and can freely select the lifestyle we desire, instead of being forced by the pressures of life to engage in work we do not enjoy.

To borrow a line from the movie "Infernal Affairs": "Before, I had no choice; now, I want to do what I want to do."

For example, many successful entrepreneurs have already achieved financial freedom, but few of them would choose to be idle; they continue to invest significant time and energy into the things they are passionate about.

For them, even after achieving financial freedom and having enough money to meet life's needs, they will not stop doing anything. Investing is something they love and are willing to commit to for a lifetime. They will persist until the day they reach the 10,000th issue.