Two of the hardest things to do in American society is first saving money period and second knowing saving enough to achieve financial freedom.

It used to be companies and governments did the savings for us and would just pay us a pension. Now that responsibility and risk has shifted to the individual. What ends up happening then is we work and work to gain and gain with no definition for ourselves when enough is enough. To make matters worse, our government and Fed constantly inflate the supply of money which means we need to constantly work and constantly invest just to keep up. So it is critical to learn this at a young age and to set appropriate goals.

The first step to saving for financial freedom is starting with small goals and that build over time. Something like the following could be a road map:

- Cut expenses to begin to live within your means
- Get out of all credit card and high interest debt
- Build some savings for an emergency fund with the goal of about six months of living expenses
- Start to chip away at other debt (student loans, car loans, mortgage, etc.) starting with the ones with the highest interest rate
- Start to invest your growing savings in a diversified and responsible way
- Start to earn returns and income from those investments

Now of course the ultimate goal is financial freedom which means being able to live off your investments, but how do you know how much that should be? To do that you need to define two things for yourself: (1) how much money do I need on an annual basis to live and (2) how much will my investments earn on average?

Once you have these two numbers, you can calculate how much you need to save up to achieve financial freedom. If you can happily live off of $24,000 per year and you know you can safely earn 4% per year, then you can convert the 4% to a multiplier by taking the inverse (100%/4% = 25). Then multiply the annual cost of living by the multiplier: $24,000*25 = $600,000. This is how much you ultimately need to save up to generate $24K per year assuming 4% returns. You can check your math by taking $600,000*4% = $24,000

If you need $50K per year for living expenses but you can earn 5% in returns, then it'll take $50K*20 = $1 million. So now you know how to calculate how much you need to save up. Now both numbers will fluctuate over time, particularly the investment return. Right now we are in a low investment return environment where the 10-year Treasury, one of the safest investment options, earns less than 1%. So it will be difficult to earn say a 4% without taking on added risk.

This just means you need to save more, potentially a lot more. The multiplier using 1% is 100! So instead of only needing $1 million to earn $50K per year at 5%, you now need $5 million to earn $50K per year at 1%.

This is why I personally am so vocal about what the Fed and other central banks are doing. By keeping interest rates artificially low, they are robbing savers and keeping people from achieving financial freedom. Some would say they are doing the opposite of what they intend. Their thinking is that low interest rates will encourage spending. But if people now need to save more because of lower interest rates and lower returns on investment, they are actually going to spend less. Check out my other postings on this subject to learn more.

My advice is to continue to save, continue to invest carefully, and calculate for yourself what your ultimate investments need to be to achieve the goal of financial freedom.

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