What financial freedom means for me

Very accidentally as I was planning to 2023, I came up with the definition of financial freedom, a formula for a number that is my “enough.”

Very accidentally as I was planning to 2023, I came up with the definition of financial freedom, a formula for a number that is my “enough.” The way I define enough is that a single dollar over this amount has no expectations and emotions attached to it. I know money is a very emotional subject and there’s a lot of expectation around what happens to money. I have a whole theory on enough vs maximizing, and I had a rough idea of what enough means to me, but now I have a mathematical formula to figure out the concrete number of what my enough is. Having this amount means to me financial freedom because of all the ways I’d like to use my money, this formula has already accounted for. It will change over time, and it will be different by person, but I hope this can help you come up with your enough so we can live in a world of abundance not maximization.

Financial freedom = current spending (x) + discretionary spending (x) + savings for future purchases (2x) + investment/giving (0.5x)

Let me break down each component:

• Current spending - I went through my 2022 budget and looked at my average spending for each month including rent, food, occasional purchases, etc and came to a number that is reflective of my current standard of living. I default this number to be x. For illustrative purposes, let’s say x = $3000/month

• Discretionary spending - This is the amount that would increase my standard of living, if I wanted to buy a new laptop, or stay at a nicer hotel on a vacation. I equate this number to the same as my current spending because that gives me the room to double my current standard which is more than extra for me. So this amount equates to x and given the previous number, it’ll also be $3000/month

• Savings for the future - I’m someone who really likes to save so keeping that in mind, I need a large buffer. This saving is for future houses, cars, and “rainy” day. For others, this may be a smaller number but I put this as 2x. This saving can also be put into safe investments - for me that’s S&P in my TFSA. This is an amount I expect to increase with low risk. Over time this number might decrease or increase, but for where I am now in my life, I planned 2x for savings, which in this example is $6000/month

• Investment/giving - Even though I said savings included investment, I have a separate bucket for investments/giving because this is more for risky investments like startups. I have this in the same category as giving because I would be OK with it being 0% return. Giving is important to me and I want to feel like I make an intentional amount dedicated to giving. This number ranges from 0.5x to 1x depending on where I am in my career so I have started this as 0.5x which in this case is $1500/month

Tallying up the formula gives me 4.5x and with x being $3000/month, this means financial freedom to me is $13500/month, which translates to $162K/year. I know there’s a difference between gross and net income so let’s just call it $225K gross*.

While this number may feel large or small to you, it clarified something for me - that one I have a number, and two, it’s in the achievable range (not taking it for granted but it’s not impossible for me to see how I can get close to that). And with this number, it’s showing me that I will not have any emotional or expectations to earn a single dollar over it because in this number encompasses all my possible needs. This formula can change (especially when kids come into the picture) but they are already factored into “savings.” It also factors in any lifestyle inflation I may want to have, a house I want to own, and all the philanthropy I want to do. Knowing this, I have the ultimate freedom when I earn anything over it because I have already taken care of all my possible needs that I have no attachment to the outcomes of the money (I will not gamble it expecting more returns, I will not donate it expecting a tax receipt, I can just give it away to friends and family and anything I want without having any expectation).

Some may ask why my giving is accounted for instead of lowering my enough so the rest can be my “giving.” There’s an honesty here that the factored-in giving I have the expectation of “feeling like I created impact” and that my money is put to good use. Those are expectations so it is part of my enough definition. The money over this amount doesn’t have to be into good use or make me feel like I created an impact because that need has already been accounted for.

Imagine the possibilities that can happen when you release all expectations of your money. What new amazing innovative ideas can we think of and do? And also realizing that this number is different for people, why bother maximizing? Why don’t we all have a number and give away the rest to no expectations and pure generosity? Imagine what we can do with that. I encourage you all to try the exercise of coming up with your enough number and releasing the expectation that your money has to make you more returns or impact.

*I’m doing this from an income perspective without taking into account net assets which can greatly impact this formula. So this is what works for me right now where I am at, and I encourage you to find the formula that works for you given your circumstances. For example, as I save and buy big purchases, it would make sense for the savings to go down from 2x to 1.5x or 1x.