The Freedom Figure: One goal you really want to score in your financial planning
Tuesday, 31 March 2026
Martin Hawes is a financial writer and presenter, and has written 25 personal finance books. He writes a weekly column.
OPINION: I have always liked to set goals. There is something compelling about formally setting a goal for yourself and putting it in writing.
In fact, at seminars I used to tell the story of a study that had (apparently) been done in the US in the 1990s. The study was said to come from Yale, and it purported to show that the 3% of students who set goals had 10 times as much income than the 97% who did not set goals. That was a very powerful endorsement of goal setting.
Except this often quoted “study” is almost certainly a fabrication; neither Yale nor any other university has any record of such a study. The study that I had read of in many different places had been made up.
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Nevertheless, study or no study, I do think that setting goals for the important things in your life is well worth doing. Even though a goal may not greatly increase your income, it will give the direction that you want to travel and also a marker so that you know that you have arrived.
To know your future direction and destination is one thing but to commit that to writing is a second very useful step. If you have committed it to writing, you cannot fudge or fib yourself out of an unmet goal.
If there was only ever one financial goal that you might set, I hope it would be your Freedom Figure.
This is the amount that you would need to have financial freedom; the wealth you would need to happily stop work.
To establish it as a goal, you need to be able to calculate how much you would need to have the life that you want. Many people would see this as their retirement figure; I call it the Freedom Figure– the net worth to give you a suitable house and enough invested to fund your life style.
To calculate it, the first thing to think about is the house that you want: that may be the house you are in now, or it could be something grander or perhaps a house more modest. Whatever, it will need to be mortgage free: you cannot have financial freedom/retirement if you have a monkey on your back in the form of a mortgage. You may need to put more money into this to perhaps buy a bigger house or pay off the mortgage. Alternatively, you may be able to take money from the house as you plan to downsize.
The amount of capital that you will need to give you enough income can be a bit trickier, but can be brought down to three main steps:
1. Do a pretend budget for your life of financial freedom/retirement. After you have allowed for NZ Super, this budget of your imagined life will tell you how much needs to be funded from investment capital.
2. Decide on your drawdown rate – the amount that you can safely take from your capital annually. You can expect to be able to spend the equivalent of 4%-5% of your initial investments and do so every year for 30 years (assuming that you are happy to spend both capital and the investment returns). That would mean that someone with $1m of investments could draw $40,000 - $50,000 each year.
3. When you know the amount of income that you will need from investments, you can work backwards to figure out the capital you will need to give you that income. For example, a 5% drawdown could be reasonable for you and would mean that you multiply the income required by 20: if you wanted $30,000pa, you would multiply this by 20 and so you would need $600,000 invested. That would mean that in your first year you could draw 5% (being $30,000) and continue to draw that same amount each year. The returns on your money invested will help the money last about 30 years.
When you add together the amount that you would want for a house to the amount of investment capital required to give income, you will have your Freedom Figure. The numbers will not be perfectly accurate (eg, inflation is not taken into account ) and so you will need to make adjustments at times.
Nevertheless, this will give you a reasonable understanding of what you will need and give you a goal to work towards. At the start the amounts may seem large, but plenty of people have come before you and met big goals. A little time finding your Freedom Figure is the first step towards getting to where you want to be.
Martin Hawes is not a financial adviser and the information and opinions here should not be taken as financial advice.