WHAT IS FINANCIAL FREEDOM?
What is Financial Freedom?
According to Todd Christensen in his MoneyFit article, financial freedom "means having enough savings, financial investments, and cash on hand to afford the kind of life we desire for ourselves and our families. It means growing savings that enable us to retire or pursue the career we want without being driven by earning a set salary each year. Financial freedom means our money is working for us rather than the other way around."
Living your chosen lifestyle while managing your finances responsibly is "financial freedom." Financial freedom may represent different things to different people, but it means having enough savings, investments, and cash to live as you choose, both now and later. Further, financial freedom is having your money work for you rather than working for – and stressing over – your money.
Financial freedom and financial independence are terms often used interchangeably. Financial independence forms the FIRE (financial independence to retire early) movement. Financial independence signifies having adequate and satisfactory passive income to cover a different lifestyle, which could be more expensive and unrestrained. Achieving financial freedom is a journey through several milestones, and financial independence is one of those milestones.
What are the stages of financial freedom?
Dependent Stage
At this stage, your expenditure is more than your income, and you depend on others for financial support. Once you start earning a profit, you progress through the following stages.
Solvency
Solvency or survival is when you no longer depend on others for financial support because your earnings now exceed your expenses. Financial solvency carries several psychological benefits because your anxiety and uncertainty decrease, and your life becomes more manageable when you meet your financial commitments.
Stability
Stability is the stage where you stop surviving and start thriving, living how and where you want. When your income is more than your expenditures: you can meet your financial commitments, pay off some of your debt, such as mortgages and student loans, and have extra income for an emergency fund and a long-term savings plan. You are invariably becoming debt-free at this stage.
Security
Financial security means having enough money to cover emergencies and future financial goals. You aren't anxious about whether your income is enough to cover your expenses.
You're on track to attaining financial freedom at this stage: by saving and creating an emergency fund. However, an emergency fund alone will not usually cover all your monthly expenses, so it's crucial to have numerous sources of income.
Independence
Financial independence is one of the milestones toward acquiring financial freedom. Passive sources of income can sustain your current lifestyle and afford you some conveniences at this stage.
You're entirely debt-free, and if you wanted to, you could retire and enjoy life without having to work again.
Financial Freedom
After acquiring financial independence, you'll likely want to go higher and live a lifestyle most people desire. You can afford high-end living, such as flying first class or taking regular trips abroad when you're financially free. You can do what you want, when you want, and with whom you wish to, at the level of abundance and wealth you want. Tony Robbins points out in his Financial Freedom Workbook, "Financial freedom is not just about finances. It's about creating and sustaining joy, happiness, and that feeling of being truly alive, living that extraordinary life that we all want and deserve."
The more savings and investments you have, the more freedom you gain. Financial freedom enables you to base your decisions on happiness rather than money, and it helps eliminate fear and worry.
Passive income can also finance your lifestyle indefinitely. Most philanthropists are in this stage of financial freedom, enabling them to take more significant risks. They can share their wealth, lead a luxurious life, and explore the world.
What if there's a way for your passive income to cover your monthly expenses and grow your wealth year by year? Want to know how? Watch this free webinar.
Takeaways:
✅ Set life goals and create a plan for accomplishing them.
✅ Budget to cover all your needs, pay your credit cards, and watch your credit.
✅ If you don’t have any debts, try to keep it that way.
✅ Be frugal when possible, and don't be fearful of asking for or negotiating better offers.
✅ Build your income and earn enough to be able to get into a habit of saving.
✅ Get a financial consultant, start investing, remain current on tax laws, develop automated contributions through your company's retirement plan, and create an emergency fund.
✅ Maintenance is more affordable than replacement, so take care of yourself and your personal belongings.
✅ Living a debt-free or mortgage-free life means that the most significant monthly expenses are out of the way, leaving you with more money to save and invest.
✅ Grow your investment past your income until your investments cause more income than your actual salary.
✅ Advancing to the financial independence stage is sometimes tied to starting a business or working part-time. You can also opt to go back to school and venture into a career path that can sustain you in your 70s. The main point is that you no longer make compromises to make money.
✅ Earn passive income that is exponentially worthwhile than the equivalent amount of money earned through traditional work.