“Financial Freedom” is a term that gets tossed around a lot, but what does it mean exactly? I’ll talk about that here – and what you can do to get there.
What is true financial freedom?
Early retirement after a lottery win?
For some, maybe, but not for most.
If you’re hoping for the easy way out, you’re mistaking what true financial freedom really is.
I’m here to clear things up. A few more questions…
- Do you feel tethered to your job? Would you prefer to make life decisions without thinking of the job you have to keep for the income it provides you and your family?
- Do you feel like you’re scraping by? Do you spend time wondering if you’ll ever see the day when money is no longer a struggle?
- Are you saving for retirement, and crossing your fingers that you’ll be around for that someday when you finally get to live the good life?
If you answered “yes” to any of those questions, you’re a candidate for a journey to true financial freedom.
Here’s the deal:
The journey to true financial freedom isn’t about hopelessly wishing for, or working madly toward, an early retirement. Because money doesn’t make you rich if you don’t know how to manage it, and life isn’t worth much if you’re too busy not living it.
Yes, financial freedom is having enough money to live free from financial burden.
But it’s a process and a long-term commitment. It’s a lifestyle.
It’s growth – letting go of whatever has been holding you back. It’s becoming the strongest and surest version of you.
Intrigued? Stay with me, then.
Define dreams. Or, where do you want to go?
If money were no object, how would you spend your days?
I hear you shrugging off that question. So I’ll ask you again…
If money were no object, how would you spend your days?
Envision what you want from life. Record your dreams and place them in a spot where you’ll take them in every day. You need to know why you’re on this journey, and why it’s worth it to you to stick it out. It’s the first step toward true financial freedom.
If you’re in a relationship, invite your partner to do the same exercise. Share your results. Where do you match up? Where are you in conflict? How can you come together to work toward a version of the good life for both of you, and any young ones you might be raising? If you’re committed to another, true financial freedom for you won’t be possible without your partner being an active part.
Assess financial health. Or, where are you now?
Okay. Good work. But, come back to reality now. Chances are you’ve been ignoring your reality almost as much as you’ve been ignoring all the possibility for a better future sooner.
It’s time to take an honest look at your current financial health. What’s your net financial worth? How much do you have? How much do you owe? What’s the difference? You need to know the answers.
Getting there (or, how you will turn your dream into reality).
Let’s chart your course from where you are to where you want to be.
You don’t need to be rich already to have a shot. And you don’t need to convert to minimalism either (though it does help). Regular people like you and me have done it, and more are on their way. You just have to want it badly enough that you’re willing to work for it.
Build a budget. Stick to it.
Start tracking your spending, so you can quickly and easily see how you’re doing against the budget you’ve set. If devising your own spreadsheet system overwhelms you, there are lots of user-friendly online resources built to help you keep track.
Repay debt as quickly as you can. Because no debt is the best kind of debt.
From your assessment of your current financial reality, you should be able to see plainly just how much debt you’re in and where it’s all coming from.
Is all of the debt worth it to you? Are there certain debts you can unload by reevaluating what you want? Maybe you would be happier in a smaller home with more cash flow. Stop paying for the monthly subscriptions that you never read, watch, or otherwise, consume. You can’t afford to pay for what you don’t even use.
Put newfound cash flow toward paying down the debt you can’t cut. Just like debts, the dollars you find here and there to pay them down add up.
Start saving. That means, pay yourself.
Once your debt is done, you can turn the cash flow you used to pay it down into savings. Pay the same cash that once covered those monthly debts to yourself. Automate this move to your savings, so you don’t even have the chance to spend it. You’ll suddenly be saving a huge portion of your income.
Your first major savings goal is to create an emergency fund (three to six months of living expenses) to protect you and your loved ones from those curve balls life throws. You don’t want a medical emergency or a lost job to devastate you financially. Should that sort of worst happen, it’ll be hard enough without your lack of savings making more trouble and causing more pain.
You’re breathing easier now because you’ve controlled your debt and prepared for emergencies. But are you overpaying for insurance, or paying for insurances that you don’t even need? Knowing the difference between term life and whole life insurance can help you select the type of insurance that best suits you needs.
You probably can’t quit your day job yet, and even though you’re getting better at living on less than you make, you’re probably still wishing you could bring in more than you do already.
A second job with set hours is a possibility. But that can be more exhausting for you and those around you than it’s worth. Starting a brick-and-mortar business is another option. But you probably don’t have the capital for that right now.
Well, those aren’t the only ways forward. There are tons of other flexible side hustles.
If you’ve got access to the internet you can learn about almost anything, and build whatever you can dream up. So spend time exploring how others live on residual income, and read up on different types of investments.
Learn about investment possibilities and begin growing your savings there, without depleting your emergency fund. The goal is to turn active income into passive income. Ideally, over time, and with diligence, you’re able to unlock total financial freedom – that is, enough passive income to completely support your lifestyle. Imagine: Money comes to you and you didn’t clock in today to earn it. You don’t have to clock in tomorrow if you don’t want to, and the passive income will still come. That’s the ultimate goal.
The journey to true financial freedom is wholly rewarding. Get to know yourself better. Take control of what you can, prepare for what you can’t, and let go of the rest. Live the life you’re meant to live, and the world will benefit from the value you create.
So take care of personal finances now. Not later. Now. Start now.
What are you waiting for?
Edward provides personal finance guidance to 10,000 monthly unique readers, helping them get out of debt, start their own businesses, and structure their financial lives. Check out his step-by-step financial freedom guide at MasterMyFinance.com.