7. The Financial Freedom Formula: Your Roadmap to Wealth

Most people want financial freedom. Few have a clear, actionable path to achieve it.

They try budgeting, saving, and investing but feel stuck, like they're running hard without getting ahead. The problem isn’t effort but rather the lack of a working formula.

This week, we’ll break down a simple but powerful financial freedom framework: a repeatable formula that shifts you from survival mode into strategic wealth-building.

The Financial Freedom Formula

The idea of financial freedom often feels abstract. But when you reduce it to a formula, it becomes something you can track, plan for, and build toward.

Here’s the formula:

Financial Freedom = (Income – Spending) x Investment Return x Time

This is not just about saving or earning more. It’s about controlling the gap between what you make and what you spend, using that surplus to buy income-generating assets, and giving those assets time to compound.

It’s also about using strategies to have momentum even when life gets busy.

The difference between people who become financially free and those who don’t? The latter waits for the right moment, while the former works the formula every day.

The Formula in Detail

Here’s how each part of the formula works and why most people overlook the obvious:

• Income – Spending: This is your “freedom gap.” It’s not how much you make that matters, but how much you keep. High earners can still live paycheck to paycheck. Low earners can still build wealth.

• Investment Return: Putting your money in low-growth or non-productive assets slows you down. Studies show diversified portfolios historically return 6–8 percent annually (Finke, 2016).

• Time: Compounding needs time. The earlier you start, the less you need to contribute to reach the same goal. Waiting just five years can cost hundreds of thousands in lost gains.

A study from Morningstar found that consistent investors who contributed regularly (even during downturns) were significantly better off over 30 years than those who tried to time the market or delayed investing altogether (Morningstar, 2023).

There’s no need to chase perfect timing or high-risk bets.

Just stick to the formula.

Key Takeaways

Start working with the Financial Freedom Formula using these steps:

1. Increase your freedom gap: Track your monthly income and expenses. Aim to grow the gap by either earning more, spending less, or both.

2. Automate your investments: Set up regular transfers into a diversified portfolio. Don't leave this to chance.

3. Choose compound-friendly assets: Use index funds, dividend-paying ETFs, or retirement accounts that grow over time.

4. Track your timeline: Use a compound interest calculator to project your freedom date based on your current surplus and expected returns.

5. Review annually: Adjust your strategy as your income, goals, and market conditions change.

Financial freedom is not a mystery.

It’s math.

You don’t need a windfall or a secret.

You need a repeatable formula and the discipline to stick with it.

This week, take one small step.

Open a spreadsheet. Run your numbers. Build your roadmap.

References

Finke, M. S. (2016). The 4 Percent Rule is Not Safe in a Low-Yield World. Journal of Financial Planning. Retrieved from: https://www.financialplanningassociation.org/article/4-percent-rule-not-safe-low-yield-world

Morningstar. (2023). Consistent Investing Outperforms Market Timing Over Time. Retrieved from: https://www.morningstar.com/portfolios/staying-invested-beats-timing-marketheres-proof

Disclaimer: This newsletter is general information only and is not financial advice. Always do your own research and consult a professional about your circumstances.