Financial freedom may conjure images of early retirement or having millions in the bank, but true financial freedom is far more personal. It is also much more achievable than traditional messaging suggests.
Financial freedom is about aligning your money with how you want to live your life. Yet, this mindset feels out of reach for millions of Brits. According to data from the Department for Work and Pensions, more than 40% of adults aged 40 to 75 admit they have no idea how much income they will need later in life.
Without a defined target, it’s easy to look at the journey and see only an uphill battle.
Having a robust financial plan in place could help you achieve financial freedom and take control of your future. Here are four steps to take on your way.
1. Start by defining your own version of financial freedom
Freedom can mean different things to different people, and at different life stages, so it’s important to identify what that could look like for you.
We often help clients break the term “freedom” down into two distinct categories:
- Freedom from financial stressors such as high-interest debt, market anxiety, or the fear of running out of money.
- Freedom to take a step back from work, change careers, travel, support children, or retire early.
To help you define freedom in your own terms, it may be beneficial to establish what your benchmark is when measured against national norms.
According to the latest Pensions UK Retirement Living Standards, a single person needs an annual net income of approximately £45,400 for a comfortable lifestyle. For a couple, this rises to £62,700.
This may or may not align with your personal needs, but working out a baseline ensures you don’t over-save and miss out on enjoying your life now or under-save and risk running short later on.
2. Work out a plan to achieve financial freedom
Once you have your definition of financial freedom, you’ll need to develop an actionable plan to help you achieve it.
This is where cashflow modelling becomes essential. Cashflow modelling helps you project how your income, expenses, and overall wealth will develop over time.
It accounts for your current assets, inflation, and tax liabilities and allows you to test various real-world scenarios to see how your money could respond. For example, cashflow modelling could test:
- What would happen if you chose to retire at 55 instead of 65
- How your investment returns could look if the market performs poorly over the next decade
- If you could afford to take a year off from work for travel.
Though the above are just examples, they mimic real questions you may have. Seeing your finances laid out clearly removes the guesswork and gives you the confidence to make life choices without jeopardising your financial security.
3. Navigate the risks with careful planning
Achieving financial freedom may be the ideal, but protecting yourself from unexpected financial shocks is what ensures it lasts. A robust plan should account for risks that can threaten long-term wealth, such as:
- Inflation risk: The gradual loss of purchasing power over a 20-to-30-year horizon can dramatically shift what your retirement looks like if your investments don’t keep pace with price increases.
- Injuries or illness: Data from the Office for National Statistics shows that more than 20% of workers are forced into early retirement due to unexpected health issues. Having insurance in place such as income protection or critical illness cover acts as a shield against this reality.
- Market fluctuations: A severe market downturn that occurs right before you begin drawing an income from your investments could have a negative effect on your portfolio. Maintaining a dedicated short-term liquid buffer can help prevent you from selling equities at a loss.
- Legislative changes: Shifts in government policy, such as changes to pension access age, tax-free allowances, or Inheritance Tax rules, can quickly derail a plan if it’s too rigid.
By actively identifying these risks and putting plans in place to counter them early, you can ensure that your financial freedom remains secure, no matter what life throws your way.
4. Partner with a professional to stay on track
The journey to financial freedom is an ongoing process, and as your life changes, your plan should adapt with you. Whether through career changes, inheritance, family milestones, or shifts in health, your financial plan should be adaptable enough to evolve as you do.
Working with a financial planner can make this easier.
During times of market volatility or economic uncertainty, a planner acts as a steady hand, keeping you focused on your long-term goals and preventing emotional, short-term decisions that could compromise your financial security.
Get in touch
Here at Bluesky, we can help you build a roadmap centred around your personal priorities and make sure your wealth is protected every step of the way.
To find out more about how we can help you achieve your version of financial freedom, get in touch.
Email info@blueskyifas.co.uk or call us on 0118-987 6655.
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.
The Financial Conduct Authority does not regulate cashflow planning or tax planning.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.
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 tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
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.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.