Designing Your Future Pt 1: Financial Freedom Number
As accountants who work exclusively with interior designers, we’ve seen firsthand the stress and uncertainty that often comes with running a design business. Many designers find themselves constantly juggling multiple projects, worrying about income fluctuations, and wondering if they’re on track to meet their long-term financial goals.
But imagine a different scenario: What if you knew exactly how many projects you needed to take on from now until you retire? What if you had a clear scope for each project and the confidence that every single one was contributing to your lifestyle goals? Let’s explore how this approach can transform your work experience and bring you unparalleled peace of mind.
Financial Freedom Number
Your Financial Freedom Number is the amount of money you need to cover all your expenses and achieve your desired lifestyle without having to rely on active employment income. It represents the level of financial independence generated during your “working years” where you have enough passive income from investments, savings, or other sources to sustain your desired lifestyle indefinitely [If you ask us, this is what how we define wealth!].
Calculating your Financial Freedom Number involves a comprehensive assessment of your current financial situation and future financial goals. It requires understanding your expenses, income sources, assets, liabilities, and investment strategies. Once determined, your Financial Freedom Number serves as a benchmark and roadmap that clarifies and informs your project needs.
Knowing your Financial Freedom Number is the first step towards achieving financial security and personal fulfillment as an interior designer.
Get Calculating
Let me repeat, calculating your Financial Freedom Number involves a comprehensive assessment of your current financial situation and future financial goals. This is no small undertaking. It will take concentrated, thoughtful time. It may require repeat sessions and input from business partners, spouses, life partners, parents, friends, etc. Get specific and detailed. Let your mind run wild & have fun.
Assessing Expenses: Start by tallying up all your monthly expenses, including personal and business costs, savings, investments, debt payments, and taxes.
Setting Financial Goals: Determine your long-term financial goals, such as retirement savings, debt repayment, and desired lifestyle expenses.
Factoring in Time: Consider the number of working years you have until retirement and any changes in expenses or income over time. Be sure to factor in the time you want to take off as well. Want to take 2-3 months off every couple of years - factor it in!
Determining the Number of Projects Needed
Once you have your financial freedom number, you can calculate how many projects you need to take on during your working years to reach this goal. Here's how:
Estimate Annual Income: Divide your financial freedom number by the number of working years until retirement to determine your annual income target.
Assess Pricing Strategy: Evaluate your pricing strategy and project profitability to ensure that each project contributes adequately to your annual income target.
Adjust Project Quantity: Based on your pricing strategy and income target, determine the number of projects you need to take on each year to reach your financial freedom number.
Example Calculation
Let's say your financial freedom number is $1,000,000, and you have 20 working years until retirement:
Annual Income Target: $1,000,000 / 20 = $50,000 per year
Pricing Strategy: If your projects generates $10,000 in revenue, you'll need to complete five projects per year to reach your income target.
In other words, during the span of a 20 year career if you were to secure 100 projects and reserve $10,000 from every project you would have one million dollars. One Million dollars before factoring in what you do with the funds along the way, say putting them to work in a high yield savings account, or investing them!
Benefits of Strategic Planning
Strategically planning your interior design career around your financial freedom number offers numerous benefits:
Clarity and Focus: Knowing your income target and project requirements provides clarity and focus, reducing stress and uncertainty about your financial future.
Work-Life Balance: By setting achievable project targets, you can maintain a healthy work-life balance and avoid burnout.
Long-Term Security: Planning for your financial freedom ensures long-term security and peace of mind, allowing you to enjoy your career without constantly worrying about income fluctuations or retirement savings.
Conclusion:
As interior designers, achieving financial freedom is not just a dream—it's a tangible goal that we can work towards with strategic planning and determination. By calculating your financial freedom number and determining the number of projects needed to reach this goal, you can pave the way towards a fulfilling and financially secure career. It's time to take control of your financial future and design the life you’re working for.