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Four Numbers to Financial Freedom, In Order

Would you believe me if I told you that financial freedom boils down to nailing four numbers?

Yes, just four. 

I’ve demonstrated this dozens of times with the people I have coached privately, and hundreds more times with the people who have followed my simple, values-based, intentional financial system, then sent me testimonials about their results.

Just. Four. Numbers.


Read about them here or join me on my Facebook Live today at 2:30 pm as I list them and give some examples.

Here are the four numbers to pay attention to in order to reach financial freedom, in order of importance.

Number 1 – Cashflow

Cashflow is simply the movement of money in and out of your life on a monthly basis.

If you have positive cashflow, that means there is money in the bank account once you’ve covered your monthly expenses.

If you have negative cashflow, that means you have spent more than you’ve taken in and you’re likely depending on debt to carry you through.

Cash is Queen. It always has been. Without positive cashflow, you’re sunk. Or, as is the case for many North Americans, you are sinking. It’s that simple.

You cannot achieve financial stability, then security, then freedom without first achieving positive cashflow. It’s not just unlikely; it’s impossible.

“What if I cover all of my expenses and have money left over, but I have credit card debt. Does that count?” I’ll get to that in a minute. In a nutshell, no.

Number 2 – Corrosive Debt

When I first started teaching financial literacy, I coined the term Corrosive Debt to distinguish between debt that helps you grow your net worth and debt that harms you.

I’m not going to go into that distinction here. For now, I will stick to defining corrosive debt this way: It is any debt that costs you more than you would earn if you invested that money on an asset (i.e. something that puts money in your jeans or grows your net worth).

In other words, it digs a hole in your finances faster than you can fill it. Most people don’t think of it this way because society has normalized consumer debt, but that doesn’t diminish its corrosive impact on your finances.

Here’s a simple short cut to figuring out what counts as corrosive debt:

  • All credit card debt, without exception.
  • The vast majority of Line of Credit (LOC) debt.

Other forms of debt, like student debt and mortgages, need to be considered on a case-by-case basis.

For now, let’s focus on the biggies – credit card debt and LOC debt.

If you’re making all your monthly payments on time and you have cash left over BUT you have a credit card or LOC balance, then you are in artificial positive cashflow territory.

When you use credit to fund your lifestyle, you are not living within your means. True positive cashflow means having extra cash in your accounts after everything else is paid for without any residual balances.

If your corrosive debt number is greater than 0, it needs to be addressed pronto in order to secure your finances.

Number 3 – Your Savings/Investing Rate

Achieving a state of true, positive cashflow is a critical first step, but it’s not sufficient. The next step is to save, then invest your money.

Most personal finance writers that I’ve come across will tell you that your savings rate is the amount of money left over after you’ve accounted for your spending for the month, in addition to any amounts you’ve invested.

I disagree. If money is left over in your chequing account, it’s not saved; it’s available. Maybe you’ll move it over into a savings account or perhaps you’ll succumb to the temptation to spend what is so readily available, as described beautifully in countless Behavioral Economics books.

That doesn’t make you a bad person, it makes you human. If money is just sitting there, we are lulled into thinking that it’s available for immediate use.

For my methodology, here’s what counts as savings: Money you actually move into a savings account or invest, away from easy access.

It’s money you deliberately set aside to fill up your emergency fund.

It’s money you use to grow your investments because that is the only way to achieve wealth.

It’s money you have intentionally taken out of immediate circulation for future use.

Take the amount of money you put into savings accounts and/or invest during the month, divide it by the total amount of money you brought in that month, multiply by 100 and you now have a Savings/Investing rate expressed as a percentage.

If that number is 3%, set a target of 4% for the next quarter. If your number is 8%, you set a target of 9% for the next quarter.

You get the idea.

If you are saving 0% and you have debt, breathe and go back to numbers 1 and 2. Mercilessly chop back your expenses, tackle debt, and, if you want to fast-forward your results, find ways to bring in extra dollars. I cover all of these strategies in my free eBook Ultimate Guide to Thriving Financially During the Pandemic.

In the book, I also discuss under what circumstances it makes sense to invest even when you have corrosive debt.

Number 4 – Your Financial Freedom Number

To help you determine the best savings and investing rate for you, you need to know where you’re headed. What are your financial goals?

What do you need and want your money to do for you in the long run?

This is where your financial freedom number comes in. Grant Sabatier does a great job of illustrating this in his book Financial Freedom: A Proven Path to All the Money You Will Ever Need!

“Your Number” is the amount of money you need to have invested earning you 4% annually, on average, in order to be able to make work optional for you. The idea is that you then live off the growth of your principal and do whatever you like with your time.

Here’s a much shortened version of how you get to that number:

  • Calculate how much money you will need to live on annually when you are no longer working for income, or when you want work to be optional.
  • If you’re looking into your retirement years, deduct any pension or other government allowances/payments you expect to receive.
  • Take the resulting number and multiply it by 25 to get a rough idea of how much money you need to have invested.

Before every financial planner on my mailing list has a heart attack and pipes up that this is a very simplified approach that doesn’t take many factors into consideration, I agree. But that’s the idea – to get a simple, first-order approximation of how much money you need to have invested.

First, wrap your brain around the ballpark number, then fine-tune the details.

Sabatier gives a lot more detail in his book. I recommend it for everyone, regardless of which number you’re working on from my list.

Embrace black and white

If you’re feeling stressed after reading my list, breathe. Your reaction is perfectly normal if you’re facing less-than-ideal financial circumstances. The fact that you’re reading this is a sign that you want to take control.

That’s a good thing! And a necessary first step.

Muster up the courage to look at the numbers in black and white on paper or on your computer monitor. Don’t look away or gloss them over.

You can’t fix a situation you’re not willing to face honestly.

Remember my approach to fixing any problem: No shame, no blame, no judgment. You seek information and understanding.

The good news is that you have the power to change your circumstances. Financial freedom can be a reality for you if you will take the time to master the four numbers above.

What number will you start with? Pick one an go. Imperfect action beats no action.

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2 Responses

  1. Doris,

    Found this through your email this morning! It was a nice refresher. I truly do love reading your blogs. I am thankful for both you with all your wisdom and advice when it comes to finances and to Bona for introducing me to this new world!

    1. Stacy, it’s so great to have you in my community! Thanks for popping by and leaving a comment. I’m glad my blogs and the Women’s Money Group resonate with you.

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