Whether you tend to focus on your retirement, supporting your children, or ensuring your loved ones will have enough when you die, the main aim of all financial planning is the same: achieving financial freedom.

Financial freedom is about being able to live life on your own terms, without worrying about money now or in the future.

Of course, it’s an aim that everyone has, but very few ever spend the time to define it and create a map for getting there.

Read on to discover four simple questions that can help you achieve financial freedom.

1. What does financial freedom look like to you?

Before you can build towards financial freedom, you need to understand what it means to you.

So, what would you do if money was no longer a constraint? Would you retire, or keep working but purely because you want to? Maybe you want to fund your children’s future, travel around the world, or simply continue your life as it is.

Whatever your vision of freedom is, the question at the heart of it is always, how much is enough? Or as it is sometimes phrased in financial planning circles, what is your “number”?

Essentially, your number represents the amount you need to live life on your own terms without any financial worries.

To find that figure, you need to consider:

• Essential costs – These are your day-to-day expenses, and cover housing, bills, food, debts, and anything else that is non-negotiable.
• Luxury costs – These are the extra expenses that you could live without but are part of enjoying life. This includes holidays, eating out, and hobbies.
• Social care costs – Care in later life can be very expensive, so it’s important to factor it in early.
• Estate plans – Whatever you want to leave behind is also a key part of the equation for finding your number.

A financial planner can help you find figures for each of these. They can also use cashflow modelling to show how your targets might shift over time as inflation, market movements, and life events change.

2. What is your current financial situation?

Once you have a target, the next move is to take stock of where you currently stand.

Start by assessing your pensions to see what you have and what you’re projected to have in the future. Do this for your workplace schemes, any personal pensions you hold, and your State Pension.

Then assess everything else. This might include:

• Savings accounts
• Investments
• Property

As well as getting a sense of their value, consider what they could generate.

Once you have finished your full assessment, you may be surprised by what you find. You may discover that you’re much closer to your number than you thought. Or you might see there is a gap, but knowing its size gives you the information you need to start closing it. Either way, understanding your current financial situation gives you a concrete starting point.

A financial planner can help you pull all of this together and make sure nothing important gets missed.

3. What actions can you take now to help you achieve financial freedom?

If after conducting the assessment of your current standing, you realise you have already achieved financial freedom, then congratulations! If there is a gap between where you are and where you want to be, there are several simple strategies you can employ to help you get there.

Some of these strategies are simple. For instance, you might be able to save a lot more by cutting back on non-essential spending or by automating your savings and investment contributions so they happen before you can spend the money elsewhere. Moreover, you may be able to make better use of your tax-efficient wrappers like ISAs and pensions to help your wealth grow over time.

Other strategies may involve bigger decisions. For example, you could explore downsizing, selling a second property, or renting out a room to generate more income.

Just a few small changes can alter your situation considerably over the long term, so it’s worth exploring all of them.

A financial planner can help you identify which strategies would be appropriate for your circumstances.

4. Are you aware of the risks?

There are many risks you may encounter on your journey towards financial freedom. The aim isn’t to avoid them entirely, as many are unavoidable; rather, it’s to be prepared for when you encounter them. Risks include:

• Inflation – Inflation can slowly erode the purchasing power of your wealth and is one of the most significant long-term threats to your financial security. Investing typically offers the best way to overcome inflationary pressures, as markets have historically beaten inflation over long time horizons.
• Market volatility – Market volatility can cause your wealth to fluctuate in the short term. However, patience and discipline have historically been rewarded, as markets trend towards growth over the long term. But it’s important to plan carefully for periods of volatility, which includes ensuring your portfolio is diversified to ensure you aren’t overly exposed to one market.
• Unexpected events – Anything from health scares and bereavements to marriages and births can drastically alter your goals and time horizons, which can turn your definition of financial freedom upside down.

This is why financial planning works best as a habit rather than a one-off exercise. Regular reviews keep your strategy up to date and in line with your circumstances and wider economic factors.

To speak to a financial planner, get in touch.

Email info@blueskyifas.co.uk or call us on 01189 876655.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

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.