Financial Freedom is not the individual goal or dream it’s a dream for the family.
So when I say I want to achieve financial freedom, I am not talking about only myself.
This is the stage where, in the absence of you, your family also enjoys the same financial freedom. So calculate the Financial Freedom Fund you require
Once the Financial freedom fund is calculated you need to find out the gap which you required to bridge between the Financial Freedom Fund and your current assets and investments.
And whatever gap is found out is to be bridged by regular investments
Financial Freedom Fund = Household Expense + Loans & Liability + Goals
Let’s take an example
In this example to make it simple to understand I would ignore the inflation and time value of money.
Some of the data regarding his expense liability and investments are as below:
In the above case let’s, first of all, find out the Financial Freedom Fund.
Considering the rate of the interest in the bank deposit is currently 5% then Mr. Amit needs around Rs. 72,00,000 for taking care of his household expenses.
Rs. 72,00,000 if invested in FD then it would fetch Rs. 3,60,000 as a yearly interest at 5% rate of the return which is around Rs. 30,000 a month.
So total financial freedom fund is the sum total of Rs. 72,00,000 plus the current and future liability minus his investments.
In this case, it would be
In the case of Mr. Amit, his Financial Freedom Fund requirement is Rs. 97,00,000 and the value of current investments is Rs. 45,00,000
So there is a gap of Rs.52,00,000 which he needs to build up through regular investments.
Regular investment in an investment option with returns @12% will be Rs 23,000 per month for next 10 years.
Regards,
Jigish Patel
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