Achieving “financial freedom” is an aspiration many people have. Yet, it can mean different things to each person and is influenced by other lifestyle goals, so defining how to measure it for you could help you turn it into a reality.
Securing financial freedom so you can retire with confidence is a common goal.
A January 2025 Legal & General survey asked people what their perfect retirement would look like. The top answer was “living stress-free without financial worries”. Correspondingly, the biggest barrier to retirement was financial concerns, which ranked higher than potential health issues and fear of boredom.
Some modern money trends have arisen from the desire to achieve financial freedom too.
For example, FIRE, which stands for “financial independence, retire early”, involves workers devoting large portions of their income to savings and investments. Followers of the movement aim to retire from traditional work as soon as possible and live off the passive income their assets generate.
The common theme among people working towards financial freedom is to live the lifestyle they want, including giving up work if they choose, while maintaining their financial security. However, how much you need to do this can vary enormously.
So, setting out what financial freedom would look like to you could be useful. Answering these two questions may provide a useful starting point.
- What do you want the freedom to do?
- What do you want to be free from?
Read on to find out what you might consider when reflecting on these questions and how financial planning could help you create an effective road map to financial freedom.
Setting out the lifestyle you want to enjoy
To calculate how much you need to secure financial freedom, you need to understand how much your desired lifestyle will cost. This is where you think about what you want the freedom to do.
Some people would prefer to live more frugally if it meant they could step back from work sooner, while others might be looking forward to a more luxurious lifestyle. From how often you’d like to eat out to what holidays you’d like to take, setting out lifestyle expectations is an essential step.
So, answering questions like those below may help you define what financial freedom means for you.
- What would your day-to-day lifestyle and spending look like?
- How could your income needs change during your life?
- Are there one-off costs you need to consider?
It may be useful to break down your income needs into essential and non-essential spending. This way, you could understand how adjusting your lifestyle might mean you’re able to reach financial freedom sooner – would you choose a lifestyle that involves spending less if you could retire earlier than expected?
Understanding your worries is important for financial freedom
To fully enjoy the lifestyle you want, you often need to have confidence in your finances. So, when you’re thinking about what you want to be free from, concerns and worries are common.
For example, to make the most of financial freedom, you might benefit from being free from worrying about:
- The potential long-term effects of inflation
- How you’d cope if you faced a financial shock
- How periods of investment volatility could affect your income
- If your partner would be financially secure if you passed away first.
Addressing these concerns when you’re setting out what financial freedom means to you could help you take steps to protect your long-term financial security and ease your mind.
Modelling your finances could demonstrate how you could achieve financial freedom
Armed with your answers to the above questions, your financial planner can work with you to create a financial plan that focuses on securing financial freedom.
As you’ll typically need to consider the long-term effects of saving, investing, spending, and more, a cashflow model may be a valuable tool. Cashflow modelling could help you visualise how the value of your assets might change over time.
For example, you could see how the value of your investment portfolio might rise over the next decade as you divert more of your income to it. Once you give up work, you might draw an income from your investments. A cashflow model could show how the value would change depending on the withdrawal rate, investment returns, and how long it’ll be used to create an income.
As a result, cashflow modelling could help you calculate how much you need to be financially secure.
You can also model different scenarios on a cashflow model, which may be useful for addressing the concerns you want to be free from. For instance, you might adjust expected investment returns to understand how a period of volatility could affect your long-term finances.
Being aware of the potential risks often gives you an opportunity to create a financial buffer or take other steps to mitigate the effects. So, cashflow modelling could mean you’re able to enjoy your financial freedom, rather than worrying about what’s around the corner.
It’s important to note that the outcomes of a cashflow model cannot be guaranteed, but the information can provide valuable insights and help you make more informed financial decisions.
Get in touch to talk about what financial freedom means for you
If you’d like to talk to one of our team about your financial plan or how we could help you reach your goals, please get in touch.
Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate cashflow modelling.
