When it comes to having clarity around your path towards financial independence, there couldn’t be a better adage than Stephen Cobey’s start with the end in mind in his book The Seven Habits of Highly Effective People.
Let’s get real – what does “financial independence” mean? How can you expect to achieve it if you don’t know what your goals should be?

You must first know what you need to achieve to actually achieve it.
Let me ask you a different question:
If you want to go on a holiday what do you need to do?
1- Buy your ticket;
2- Organise your accommodation;
3- Make sure you have spending money to blow;
4- Land at your destination and then have an amazing time.

Why is this answer so easy when the question of your financial independence destination is such a mystery? The reality is you need to start getting yourself in order right now. Let me help you start to solve this mystery, what would it currently cost to live the lifestyle of your dreams?
Grab a pen, pencil or crayon and work out some numbers:
1- Start by working out your own budget. What are you currently spending on your home bills, groceries, insurances, education, entertainment, gifts and holidays. Think you have that number right? Wrong. Increase it by 10 per cent, I call it the ‘evaporation factor’ – you have $50 in your pocket? Puff its already gone.
2- What is missing from your current lifestyle that you want in it? Is it more holidays, is it a new car, is it more cash so that you can help others with it? ADD that onto your current costs.
So now you know what lifestyle you want. You need to adjust that number for time. How long are you going to set yourself to achieve this? A little thing called “inflation” needs to be factored.
Let’s say in today’s dollars you want a $100,000 per annum lifestyle and want to achieve this in 15 years. If we accept inflation will be 2.5 per cent per annum, in 15 years $100,000 = $141,297.

Based on the above numbers – in 15 years your investment assets (investment property, shares, managed funds, fixed interest, cash) need to be significant enough to generate $141,297 passively.
Let’s say we aim to achieve 5 per cent passive income (not growth – I’m talking share dividends, property rental income, fixed interest dividends etc). Guess what? You would need $2,825,940 of investable assets to achieve this. That would be your financial independence number – sure, how long you need the money to last, what level of investment risk you are willing to expose these assets to are a factor.Three easy steps:
1- Take your desired passive income;
2- Increase it with inflation over the time you have set yourself to achieve it;
3- Divide it by 0.05 = The lump sum of investment assets you need to grow to.
Now you know what you need to achieve, this is just the beginning – next question is how? You must start with the end in mind – you know you deserve it.

If you’re looking for a financial planner you can trust, contact Jim on
1300 827 439 or visit www.meritfp.com.au
*This article sponsored by Merit Financial Planning. This information is general in nature and does not take into account your objectives, financial situation or needs. You should consider whether this information is suitable to you and your personal circumstances. Jim Mills is an authorised Representative of Merit Wealth Pty Ltd AFSL409361.