Step #1. Financial Protection
The key thing to understand about financial freedom is this – no matter how much money you earn, it’s vital to understand that you can only ever achieve financial independence through the generation of non-earned (passive) income i.e. a return on a capital sum invested. Or to put it another way, making money work for us, rather than us working for money!
Now, what I wanted to do was figure out ‘what’s the number’? In other words, how much capital do you need to achieve: 1. financial protection; 2. financial security, and 3. financial independence?
Below I have calculated how much it costs to reach financial protection.
Financial Protection is the minimum level of financial wellbeing and first destination on the road to financial freedom – making sure you and your family are protected no matter what short or long-term financial challenge may befall you or the economy. Here’s how you know you and your family have achieved financial protection:
- You have enough liquid capital to cover your basic living expenses for a minimum of 3 months and ideally up to 2 years. So, if your basic living expenses came to $3,000/month, you’d need a minimum of $9,000 and ideally $72,000 in liquid capital.
- You have a life insurance policy in place that provides income to your family/dependants to maintain their lifestyle if you were to pass away.
- You have disability income protection insurance to protect you and your family should you become disabled in any way and prevented from working and earning income.
The amount of disability insurance you should have is directly related to the amount of money you’ve saved. If you have say 3 months liquid capital saved, then you should really consider having disability protection to cover the outstanding 21 months so that ideally you have a combination of savings and/or disability income in place to cover 24 months basic living expenses. As a rule of thumb, insure yourself for 60% of what your income is. Typically the monthly cost of disability insurance can be about $30(if your 30yrs old) and up to $100 (if your 50yrs old) per $1,000 protection
About Keelan Cunningham
Keelan Cunningham is an entrepreneur, multiple business owner, author, and personal finance/wealth building specialist. Keelan’s passion is helping people improve their business acumen and personal wealth creation strategies, so they can lead a truly wealthy life in all aspects and with any luck similarly transform the lives of others.
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