The Two Stages of Financial Freedom

As financial professionals, our long-term goal for our clients is usually to help them achieve financial freedom. And when we talk about formulating a plan to reach this goal, there are really two different stages of this that we’re talking about.

The first stage of financial freedom is paying off the mortgage on your home.

For most of our clients, that’s the single largest expense that they have. The sooner that they’re able to clear that debt, the sooner they’re able to focus on their other goals and priorities. Because suddenly that huge chunk of their pay that was going towards paying down your home becomes disposable income again.

What that can also mean is that you won’t have to work as hard for the same take-home pay. Meaning you can start to be a lot more flexible with your work schedule. That could mean taking more unpaid vacations, working fewer days, or working shorter hours. And you should still be able to maintain the same lifestyle you were living before since that huge monthly mortgage payment is off your plate.

And that’s only if you wanted to change your working situation after it’s paid off. If you didn’t want to make any changes to your professional life, that means that you now have a significantly larger chunk of disposable income each month because you no longer have your mortgage repayment to make. This can now be put towards different financial goals, things like wealth creation, or even just something as simple as enjoying more holidays!

The second stage of financial freedom is having an investment portfolio of shares, property, business, and superannuation investments that can generate enough income to cover your annual living expenses.

Once you reach this point, it gives you almost unlimited freedom. Now you won’t be working in order to survive, you’ll be working to continue contributing to your investments, and you’ll be free to spend your take home pay much more freely, or use it to continue contributing to your portfolio.

Now ideally you aren’t waiting until you’ve paid off your mortgage fully to start your investment portfolio, but this will vary depending on the person, their financial position, financial goals, and the strategy that they have in place. Some people are able to start investing a little on the side while still paying down their mortgage, and if you can that’s great!

When you start building an investment portfolio with a financial freedom goal in mind. The size of the portfolio you’re aiming for is going to be dependent on the amount of income you need annually to support your living expenses.

Below are a few examples based on different annual income targets, assuming a 5% per annum return on investments and a strategy where you live solely off the earnings from your portfolio each year.

  • $60K/annum income target = $1,200,000 investment portfolio balance
  • $100K/annum income target = $2,000,000 investment portfolio balance
  • $150K/annum income target = $3,000,000 investment portfolio balance

Both stages of financial freedom are achievable, but it requires discipline and planning to reach them effectively. Everyone has a different financial situation, a different starting point, and is on a different journey. But these are two common goals that most people share and are the ones we believe are definitely worth planning for and chasing.

After all, these are the targets that all the team at Catalyst are personally chasing. And we want to help our clients achieve them too. The result will be much less stress in your life over the long term, and more financial options available so that you can live life on your own terms.

Ryan Porter is a Wealth Coach at Catalyst Wealth Group. His mission is to help his clients achieve financial success and live their ideal life.

Any advice or information in this publication is of a general nature only and has not taken into account your personal circumstances, needs or objectives. Because of that, before acting on the advice, you should consider its appropriateness to you, having regard to your objectives, financial situation or needs.