Glossary
What Is Financial Freedom? Definition and Example
Financial freedom means having enough savings and income from assets to cover your living costs without needing to work for money.
What it means
Definitions vary from person to person. A common planning rule of thumb is to estimate your yearly expenses and divide by an assumed withdrawal rate, for example 4%, to get a target portfolio size. It is a rough guide, not a guarantee, and it depends on markets, taxes and your own spending.
Example
With 60,000 a year in expenses and a 4% rate, the target is 60,000 divided by 0.04, which is 1,500,000, in your own currency.
Why it matters
Having a clear number and a monthly system turns a vague goal into a plan.
Related terms
- Compound Interest: Compound interest is interest earned on both your original money and on the interest it has already earned.
- Asset Allocation: Asset allocation is how you divide your investments between asset types such as shares, bonds, cash and.
- Dollar-Cost Averaging (DCA): Dollar-cost averaging is investing a fixed amount at regular intervals, such as every month, regardless of.
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Frequently asked questions
Is the 4% rule guaranteed?
No. It is a rule of thumb that depends on markets and your own situation.
How do I start working toward it?
Know your expenses, set a target number and automate regular investing.
Is this financial advice?
No. It is education only.