How much money do you think you need to be financially secure, independent or free? What if it was possible to define a plan to follow in order to reach one or more of the 5 different levels of financial goals?
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All of this is possible, and you can even adopt several strategies to speed up your plan.
This article is dedicated to the 3rd step to achieving financial independence according to Tony Robbins’s book "Money, the Art of It".
The first step, the 1st rule to get rich, is to make the most important financial decision of your life. It is this: decide what percentage of your payroll you are going to keep to yourself.
The second step is to know the rules of the game well so as not to spoil your efforts to accumulate capital because of errors in choosing your investments. To do this, Tony Robbins unmasks 9 financial myths, misconceptions about investing that we have been exposed to for so long that we have come to accept them as true without ever really questioning them.
You can read these two steps here:
Today, you will take the 3rd step, defining your action plan to reach your financial goals. How did you answer the question at the start of the video? How much money do you think you need to be financially secure, independent or free?
Well, in Tony Robbins’s experience, a lot of times we just have a very vague idea of how much we need to reach our financial goals. And, what's more, we often end up imagining a much higher reality figure.
As a result, the goal seems so far away and beyond our reach that we become discouraged, and we drop everything even before starting!
Rather than sticking to a very vague goal, which does not allow progress, it is better to take a few minutes and calculate it exactly. How much income from your investments do you need to achieve your goals?
Remember:
the goal is not to make as much money as possible, nor to compare yourself to your neighbor to see who has the best looking toy. The goal is to make the dreams you have for your life come true.
The 5 levels towards financial freedom
Tony Robbins puts forward 5 different levels, successive steps towards your financial dreams. Here they are :
1. Financial security:
At this stage, the earnings from your investments cover all basic expenses: your mortgage (or your rent), current expenses such as water, electricity or gas, your food expenses, transport, and basic insurance. Once financial security is acquired, all these expenses are covered by the income from your capital, without counting on your work !! To know precisely the amount needed for your financial security, calculate the annual sum of these daily costs. Most likely, you don't have to be millionaires: a few tens of thousands of dollars of income is often enough for your financial security.
2. Financial vitality:
This second level consists of covering with your passive income, in addition to basic expenses, some of your little extras: half of the expenses for clothes and shoes, half of the outings to restaurants or to the cinema, half of the small pleasures.
3. Financial independence:
Once you reach this point, the return on your investments allows you to keep your current standard of living, without having to work. This doesn't mean you have to stop working at all costs. Most likely, you will want to continue. What is important is that now you have a choice: you are ultimately independent from your work. What exactly is the annual amount of your current expenses that would guarantee you financial independence?
4. Financial freedom:
from this level, you improve your living environment even more. To your current standard of living, you add two or three luxuries that you dream of. You can afford them without having to work to pay for them. For example, you may want to travel, buy works of art, or make a donation to associations. What level of passive income do you need to be financially free?
5. Absolute financial freedom:
this is the level in which you can afford all your dreams without further financial barriers. Not everyone will reach this level, but dreaming and nurturing their desires can be a powerful engine! You can also, for example, achieve financial independence through your investments, and continue working to live in complete financial freedom. It's up to you to decide which solution will give you the most pleasure!
According to the author, it is very important to know precisely the amount of income corresponding to each of these levels. If the goal is not clear, it becomes much more difficult to achieve it.
In order to make the calculation easier for you, Tony Robbins has created a smartphone application that lets you know the income level for each of the stages.
Create your financial plan
Now that you know your goals, all you have to do is define the plan to achieve them.
You have already decided what percentage of your income you are going to invest. Perhaps, you have also decided to invest a high percentage of any future increase in your income.
So you can simulate your path to each of your goals. I searched the internet for a calculator that allowed you to do this in a simple way, but I couldn't find anything that I liked.
So I decided to offer you an excel file that you can download directly.
Granted, this excel file is just a very simplified template, but it can get you started to get a feel for it. So, according to your plan, how long do you need to reach the different levels of your financial goals?
Once you've defined your plan, the most important thing is to take action to make it happen!
To move steadily in the direction you have set for yourself. This is a marathon, not a sprint!
Please note: a plan is only a simulation. Your true results depend on the fulfillment of the assumptions you made, as well as other variables that for the sake of simplicity do not appear in the model (such as your tax rate, or inflation).
What is important is not that the plan is 100% correct, but that you have now decided how you are going to build your financial future. You are determined to implement the plan and adjust it when necessary to achieve your goals!
You may be surprised to find that the first levels to achieve, such as security or financial vitality, are not as far as you might expect.
Most people overestimate what they can do in a year, and greatly underestimate what they can accomplish in a decade or two.
I repeat: the goal is not to accumulate more and more money. The goal is to have choice, the freedom to live life on your own terms. As Jim Rohn said, “What you have will never make you happy. It is what you become that will make you very happy or very sad.
Speed up your financial plan
Now that the plan is clear, Tony Robbins suggests 5 strategies you can adopt to speed it up:
1. The first is to save more, and invest the difference:
Take a closer look at your expenses, and identify if there are any that you do mechanically, without needing them, and without making you particularly happy. Giving it up may take a little effort in the short term. But if you can save and invest a few dozen euros more per month, or a few hundred, you can easily save a few years on your plan!
2. The second is my favorite, because it requires constant improvement:
It consists of earning more, and investing the difference. How to earn more? Your salary level today, or your bottom line if you have a business, depends on how much value you bring to the market. The simplest solution, but which quickly reaches its limits, is to work longer. The smartest approach, however, is to increase the value you can bring to others: learn new skills, work on your personal development. Rarely does this approach bring immediate results, but over the long term the evolution can be dramatic.
3. The third strategy is to cut costs and taxes on your financial earnings, and invest the difference:
You can find ideas on how to reduce costs on the video dedicated to false financial myths. Regarding taxes: find out about the tax assistance available for certain investment products in the country in which you live. In France, for example, you have the Action Savings Plan, Life Insurance, or Company Savings Plan. The time spent choosing the optimal solution will save you a lot on your financial plan.
4. The fourth strategy is to find the best returns for your investment, and invest the difference:
For that, increasing the risks for a better return is not necessarily a good idea. What Antony Robbins proposes is to seek investments with an asymmetric ratio between risks and benefits. For this, the allocation of your assets is the key factor according to all the top investment professionals interviewed by the author.
5. The fifth strategy is more drastic:
it consists in looking for a new living environment, in which you can maintain (see increase) your standard of living while reducing your expenses, and by investing the difference. It consists of looking for cities, see Countries, in which the cost of living is lower, and which increases your investment capacity.
There you have it, if you have taken the time to calculate the income necessary to achieve financial security, vitality, independence or freedom, if you have created the plan to follow to reach the different stages of your financial goals, you already have outnumbered 99% of people who groped their way into the money business.
Do you know your specific plan for being financially secure, independent or free?
What levers do you have to accelerate the achievement of your financial goals?
Leave a comment below!