Definition of Financial Freedom

Everyone has the right to pursue his or her financial dreams. To turn those dreams into reality, we must identify precisely what they are. Following are five levels of financial well being that are possible to attain. Use this list to clarify which dreams are most important for you to achieve in your lifetime.

1) Financial Protection
This is the minimum and first financial goal for everyone. Its purposes is to be absolutely certain that you and your family are protected no matter what short or long term challenge may befall you or the economy. You have accomplished financial protection for yourself and your family when 3 goals have been met:

i) You have accumulated enough liquid assets to cover basic living expenses for 3-6 months
ii) You have begun a begun a private pension fund
iii) You have obtain insurance coverage for death, critical illness, permanent disability, hospitalisation or survivor needs to ensure that no matter what happen, you and your family would be taken care of.

2) Financial Security
You have achieved financial security when, through various investments, you 've accumulated a critical mass of capital that invested in a secure environment at an annual 8%* annual rate of return provides you with enough cash to meet the following six needs forever without having to work again unless you choose to:
i) Monthly mortgage payment
ii) Monthly food expenses for you & the family every month
iii) Pay for all the gas, electric and utilities
iv) Pay for your transportantion & communications needs
v) Pay for all your insurance premiums
vi) Pay for all applicable taxes, eg: property tax

3) Financial Vitality
You have achieved financial vitality when, through various investments, you 've accumulated a critical mass of capital that invested in a secure environment at an annual 8%* annual rate of return provides you with enough cash to meet the 6 goal of financial security, plus the following 4 goal, without having to work again unless you choose to.
i) The ability to provide, substantially or completely for your children's education
ii) The continued funding for your pension plan to enable you to build even greater financial strength for the future
iii) Providing for basic entertainment needs (at least 50% of what you enjoy now)
iv) The purchase of new clothing, or one or two reasonable "luxury" items

4) Financial Independence
You have achieved financial independence when through various investments, you 've accumulated a critical mass of capital that invested in a secure environment at an annual 8%* annual rate of return provides you with enough cash to live the exact same quantity of life you have today (accounting for inflation), without have to work again for the rest of your life. Financial independence is achieved when your investments income produce an income equal to your "work" income. If you earn $100,000 a year & invest $10,000, then the number you would actually need to be financially independent is $90,000.

5) Financial Freedom
You have achieved financial freedom when you have enough critical mass to provide sufficient income for you to live the lifestyle you desired (accounting for inflation) without ever having to work again for the rest of your life.

* One may substitue whatever rate of return one feels comfortable to obtain consistently