Life starts out in the neutral position between profits and losses – it neither fears losses nor desires profits. Life just is, and that’s represented by the Grail. However, as a human being develops self-awareness, fear and greed also arise. But when you get rid of the greed (and the fear that comes from lacking), you reach a special unity with all. And that’s where great traders and investors emerge.” – Van Tharp, Market Wizard, from Trade your way to financial freedom
Financial freedom may be closer than you think.
By following these three potentially life-changing steps, you could achieve financial freedom years earlier than you thought, or in some cases find you are already there:
- Discover your financial freedom number
- Re-define what financial freedom means to you
- Set meaningful goals
This approach to financial freedom is scientific. We want to give you a method that generates action steps specific to your own circumstances.
But as with most things that involve human emotion, science will only take you so far. While you will become very clear on what you need to do to achieve financial freedom, you will need to think hard about what is important to you, and your loved ones as well as how much you are prepared to give to get it.
It’s this human element that makes goal-setting so inspiring and empowering.
Goal-setting is essential to developing a winning Forex trading system that suits you
To be a money master, you must be a self-master. – J. P. Morgan
Before we get into the nuts and bolts of financial freedom, it’s important to understand why goal-setting is a core element of developing your Forex trading system.
What is a Forex trading system?
A Forex trading system is a set of rules you have for placing a currency trade. For example the Forex trading systems that we use have rules for:
You will likely develop three or more Forex trading systems to assist you in achieving your goal of financial freedom.
The first part of developing a top quality Forex trading system is defining objectives. For example here is a set of objectives for an imaginary system.
- I would like my system to make 10% a month;
- I am prepared to risk 2% of my capital to make 10% a month; and
- I only want a 30% chance of losing 2% of my capital.
Once you have defined these objectives you then develop a set of position-sizing rules to use when you place trades that are designed to meet these objectives. This is the “how much” element of your investing strategy. For example this could be:
- I will risk $500 a trade; or
- I will buy 1 lot of EUR/USD.
With-out first uncovering your financial freedom number and having a deep understanding of your goals and risk-profile it’s hard to know if these objectives are in alignment with your needs.
It’s much better to integrate your overall financial goals into your trading systems, other-wise there will be internal conflict (or conflict with a loved one) that will cause mistakes and losses.
In the model of successful traderss that we teach in this course, effective goal-setting is essential before developing objectives for individual trading systems.
The definition of financial freedom.
“To trade successfully, you need to explore your relationship with money and why you do or do not have enough to trade with” – Van K. Tharp, Market Wizard, from Super Trader
So what exactly is financial freedom?
One definition is:
Financial freedom is having passive income that covers your expenses.
According to this definition, if you are earning more money each month from your trading income than you spend on your lifestyle then you are technically financially free.
Let take a look at some simple maths to see how achievable this is. Note, this example is making some assumptions, nor does it include tax.
Say you set a young couple set a reasonable goal of becoming financially free in 10 years’ time. They start off with $50,000 in capital and are able to save $100 a week. Over this period of 10 years they are able to earn 15% on average returns.
After 10 years they have $323,694.12. Assuming a 15% return on this capital they are earning $48,554.12 per year in passive income, or about $4000 a month.
If their expenses are less than $4000 a month they will have achieved financial freedom.
Your financial freedom number.
To calculate your financial freedom number, calculate your monthly expenses.
This is your financial freedom number.
For example, if your monthly expenses come to $5339 then your financial freedom number is $5339.
Like in the above example, once you have more passive income than you do expenses you are financially free. Simple.
Next, calculate your net-worth.
You can now work-out what return you need on your net-worth to achieve financial freedom.
Say your expenses are $100,000 a year, and you have one million dollars. If you could make 10% per year on your one million dollars you are financially free. If instead you have $500,000 but were confident you could make 20% per year you would also be financially free.
Some of you may now be having a-ha moments, when you realize how close you actually are to what you thought was an elusive goal.
Change your definition, change your world
Take a look at this clip on how changing your thoughts can change your reality.
Notice how by shifting his mindset, the character was able to transform his world from one of agitation to one of peace and serenity.
You have this power too.
By re-defining what financial freedom means to you, you take one more step beyond the Matrix and start to create a future that you own, rather than automatically living a life run by others.
There are numerous paths to financial freedom. Once you open your mind’s eye and think creatively you will realise that in many ways you are more limited by your own imagination, and willingness to live a life less ordinary than you are by money.
What really is passive income?
Possibly the simplest way to re-define the definition of financial freedom is to change what the term passive income means to you.
Perhaps you believe that you are financially free if you can generate more money than you need to exceed your financial freedom number in 20 hours work a week.
Or perhaps, you would consider yourself financially free if you were to only need to work 20 hours a week trading Forex and could take a 3 month holiday a year.
Have a deep think about the lifestyle you want to live when you are financially free. You may well not want to stop work altogether. Or maybe you do. Either way is fine. Just make it personal, and above all make it achievable.
Quit your day job, move to a tropical paradise and live the dream
You should seriously consider it.
I mean, why not?
By benefiting from a strong “western” currency you can have a lifestyle that would be the envy of most of your friends and family by living in the Philippines, Paraguay, or any other stable emerging market.
Ok, while this stuff is all true, quitting jobs and moving your family to a different country is not necessarily that simple (though it can be, where there is a will).
The point of this is to think creatively about how you can redefine your concept of financial freedom. Let the mind wander down all the exciting paths you can come up with and see what arises. You may get a surprise about what you realise you can do. Tropical island ahoy!
Have fun with this. Think about how you can influence your financial freedom number for the better, or what you could do to change your lifestyle.
(In case you’re wondering, we actually did do this. My fiancée and I quit our jobs and moved to Phuket in Thailand)
Setting meaningful goals
Once you have uncovered your current financial freedom number and realized that you can re-define financial freedom to suit your needs, it’s important to start thinking about what you truly want from life.
Having enough money to cover your expenses is great. But if you can link your trading to a higher purpose, you raise yourself up yet another level.
Start by asking yourself this question:
“If I achieve my Forex trading goals what will it enable me to do?”
Now get out a pen and paper and spend 5-15 minutes brain-storming potential answers.
This could be anything from “put my children through university” to “retire in 5 years’ time and live off the income”.
Now pick the number one goal from your list, the one that gets you excited the most.
Once you have thought about what achieving your financial freedom goals will mean to you, I then want you to take a moment to think about these questions:
“What would you do to achieve that goal? What would you give? And how committed are you to making sure it happens?”
When I have asked people this question in the past the main answer I get is “anything, anything, whatever it takes”.
When you do this process be sure to include your family. If you set objectives on your own with-out buy in from your loved ones then you could create conflict that could impact your trading performance.
It’s best to talk openly and honestly, without an agenda. When you listen carefully and non-judgementally to the concerns of others, you are sure to come to an even better solution. If you are having trouble in this area, try reading Stephen Covey’s Third Alternative.
By the way “I want to make money” is not a good goal. It’s not specific or emotive enough to really work. It’s best to come up with a number (like your financial freedom number) and very personal reasons why you want to achieve your goals.
Studies show that if you set specific and meaningful goals you are far more likely to achieve success. Van Tharp, whom I am a student of, actually believes that 50% of the time developing a successful trading strategy should be dedicated to creating clear objectives. It’s that important.
Goals are a work in progress
“No plan survives first contact with the enemy” – Military adage
Are you a perfectionist?
I certainly can be.
When you set goals, realize that they don’t have to be set in stone.
You initial goals are likely to change down the track. Keep them simple, robust and flexible.
Your hard work now will be life changing
Every moment you spent working on your goals will pay bountiful dividends down the track.
By obtaining clarity in what you want, not only do you create a road-map to achieve your goals, but you will have lit a fire with-in. The burning passion that well-developed goals inspire, helps you to stay disciplined, avoid procrastination and ultimately to help you become the person you want to be.
Goal-setting works on a subconscious level.
Aside from the conscious actions you will take, your subconscious mind is now hard at work, finding ways for you to achieve your goals. You have awakened the sleeping giant that is your true-self and it will relentlessly work on your behalf to guide you towards financial success.
Take the time now to think very carefully about what you want out of life.
Spend some time sitting on a park bench, walking around the block or at a café with a loved one, and brainstorm about your future. Take detailed notes and make sure you enjoy the process. If you feel bad at all, sit back take a deep breath and just be in the moment. And when you are ready again, let the creativity flow.
The more time you spend on this exercise the better. So don’t rush it. You will know when you are ready.
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Until next time,
- Fill out the Live My Dream goal setting course work.