The financial freedom runway is a concept that helps people plan their path to financial independence. It’s a useful tool for anyone who wants to achieve financial freedom, whether that means retiring early, starting a business, or pursuing a passion without the need for a traditional 9-to-5 job. In this article, we’ll explore what the financial freedom runway is and how to use it to achieve your goals.
What is the Financial Freedom Runway?
The financial freedom runway is a framework for planning your path to financial independence. It’s a visual representation of the time it will take to reach your financial goals based on your current income and expenses. The financial freedom runway helps you identify the milestones you need to reach along the way and gives you a clear picture of how long it will take to achieve your goals.
How to Create a Financial Freedom Runway
Creating a financial freedom runway is easy. Here are the steps to follow:
Step 1: Determine Your Financial Goals
The first step in creating a financial freedom runway is to determine your financial goals. Do you want to retire early, start a business, or pursue a passion project? Whatever your goal is, write it down and be specific about what you want to achieve.
Step 2: Calculate Your Expenses
The next step is to calculate your monthly expenses. This includes everything from housing and utilities to food and entertainment. Be honest and thorough in your calculations.
Step 3: Determine Your Income
The third step is to determine your monthly income. This includes your salary, any side hustles or freelance work you do, and any other sources of income you have.
Step 4: Calculate Your Savings Rate
Your savings rate is the percentage of your income that you save each month. To calculate your savings rate, subtract your monthly expenses from your monthly income and divide the result by your monthly income. For example, if your monthly income is $5,000 and your expenses are $3,000, your savings rate is 40%.
Step 5: Use a Financial Freedom Calculator
Once you have your savings rate, use a financial freedom calculator to determine how long it will take to achieve your financial goals. A financial freedom calculator takes into account your savings rate, investment returns, and inflation to give you a clear picture of how long it will take to reach your financial goals.
Step 6: Create a Financial Freedom Runway
Finally, create a financial freedom runway to help you visualize your path to financial independence. Start with your current savings rate and projected timeline, and add in the milestones you need to reach along the way. For example, if your goal is to retire early, your milestones might include reaching a certain net worth or investment portfolio size.
The financial freedom runway is a powerful tool for anyone who wants to achieve financial independence. By creating a plan and visualizing your path to financial freedom, you can stay motivated and on track to reach your goals. Remember, achieving financial freedom takes time and discipline, but with a clear plan in place, you can achieve your goals and live the life you want.