Achieving Greater Financial Freedom – How We’re Doing It

My last post explained why the Cavalier clan is trying to achieve financial freedom and what it means to us. (Primarily, having the option of not needing to be in salaried employment).

The next few posts will be about what we are doing to achieve financial freedom, how these activities align with our other personal, social and environmental objectives, and if they don’t align, how we’re managing (or failing to manage) the trade-offs.

This will be a short post to set the scene.

I explained in my last post that we’ll be using the 4% rule as a reference point for achieving financial freedom. That is, when our invested savings are 25 times our annual spending then we’ll be confident that we’ve achieved financial freedom.

There are two key elements to achieving this objective:

  • Managing our spending – The key insight from the 4% rule is that the critical determinant to achieving financial freedom is managing your annual spending, as this is the amount being multiplied by 25. The good news is that we have a significant amount of control over the amount we spend. Our key goal is to maintain our spending at a level that enables us to save 50% of our current income.
  • Implementing a robust investment strategy – Investing our savings in a way that maximises our chances of achieving financial freedom. We don’t have a lot of direct control over our investment returns. However, it is well within our control to implement an investment strategy that has a high probability of achieving the long run return we require and which avoids unnecessary expenses. Our key goals/targets are:
    • A long run annual real return of 5% (or a 7.5% nominal return assuming inflation of 2.5%)
    • Limiting the total fees and expenses associated with our investments to 0.25% of our portfolio.

I’ll explain how we’re seeking to achieve these goals in upcoming posts.

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