Numbers you need to know for financial freedom
Updated: May 26
Financial independence is something that most people aspire to achieve during their life time. Often it's a case of the sooner, the better. Who wouldn't love to wake up each day without the burden of debts and budgets lurking over them? Most of the time it seems unrealistic to achieve financial independence, but it doesn't have to be. If you are aware of your numbers, it becomes more achievable.
Before we share the numbers that you should be aware of to achieve financial freedom, we will explain what it is. Essentially, it's about being able to support your lifestyle without a wage to meet your costs. The money being produced for you will come from your assets.
Your starting point between now and then
Think about how long you anticipate it'ill take you to achieve financial freedom. To do this, look at the window between your starting point and then. Establish your goals and write them down. Then create a timeline or vision board. It's important to provide yourself with SMART goals. SMART goals are specific, measurable, achievable, realistic and set out in a timely manner.
Your current net worth
You need to know what your current net worth is. To do this you should be able to calculate the value of everything you own of worth (also known as your assets). From there, calculate everything that you owe in debts and subtract this from your assets.
Then voila - there is your current net worth!
Your debt-to-income ratio
Do you know how much of your gross income is going towards paying off your debts? Lenders generally use this ratio to determine your circumstances when you apply for a loan. From a personal perspective, it's important to have a good grasp on what your ratio is to establish when you will realistically achieve financial freedom.
Your rate of savings
To determine your rate of savings you need to know how much your investing into your savings. This is calculated by how much you are saving from your income. A general rule of thumb is that we should be saving a minimum of 15-20% of everything we make from our income.
Do you have a war chest?
A war chest or emergency fund is a sum of savings that you have stored away for uncertain times. This fund should be sufficient enough to cover you for a period of at least six months in case health emergencies, or the risk of unemployment arises and you can't afford to meet payments and support your lifestyle. To learn more about war chests, check out this link to one of our articles on why you should have a war chest.
What is your credit score?
Are you aware of your credit score?
Your credit score or credit rating is a number that lenders use to decide on whether to give you credit or lending. It's based on your personal and financial information. Your credit score is calculated based on the amount of money you've borrowed, the number of credit applications you've made, and whether you make your payments on time.
You can get your credit score for free from mycreditfile.com.au.
We can help save you money on your finance lending...
To get a grasp on your finances or to access lending, don't hesitate to reach out! If you currently have lending and haven't had it reviewed in two years, it may be worthwhile consulting our mortgage brokers for a free loan consultation to see if we can save you money from your lending. After all, the more you save, the easier it becomes to achieve your financial independence.
Find out more by reaching out on the details provided below:
Ph: 1300 130 932