If you’d rather listen to this article on Financial Freedom, you can find it here on the Optimal Finance Daily podcast, or listen below!
Living in the U.S., we are constantly bombarded with the word freedom. We all know what it means, yet it’s not easy to put it into a few simple words. Ultimately, we think having freedom means having power over ourselves and our future. Power over how we spend our time. Over how we feel. And power over what we can do and say. To be free of constraints is one of life’s true luxuries. So, what is financial freedom?
Does this mean that the definition of financial freedom is having power over our finances and money?
Before we jump into what financial freedom is and looks like, we want to highlight the reality that many people don’t have the basic freedoms that many of us enjoy. It may seem silly to talk about money when some people don’t have the freedom of speech, the freedom to work and provide for their families, or the freedom to live a life free of fear.
What Is Financial Freedom?
To have financial freedom means to have power over how and when you’ll make, spend, and earn money. To be free of financial constraints. Does this mean you need to be able to afford anything you want, like a private jet, to be free? Of course not. Does this mean that everyone with $1million in the bank has financial freedom? Absolutely not. Is it possible to have financial freedom without having millions of dollars? Yes!
Having financial freedom doesn’t simply mean being wealthy or not having to work any more. Those are simply things that people with financial freedom may be or decide to do. However, remember that being wealthy is better than being rich.
What Does Financial Freedom Look Like?
Having true financial freedom means going to bed without worrying about where the next paycheck will come from. It means not having to worry about whether you’ll eventually be able to retire. Not losing sleep over how you’ll pay the mortgage next month. It means going to bed knowing that the light and heat won’t be shut off in the morning. Most importantly, it means not having to compromise about the things most important to you. It means having time.
Having the freedom and the means to provide the most important things in life (food, water, clothing, shelter, sanitation, education, and healthcare) for your loved ones, is an incredible achievement. To many, it may seem like a low bar, but when the data shows the average American doesn’t have $400 in the bank, it highlights that it’s not as easy or as simple as it sounds. The good news, is that many people have the ability to achieve financial freedom. No one said it’d be easy, but it’s possible.
The Biggest Driver Of Financial Freedom
There’s 1 thing you control that will greatly affect whether you’ll achieve financial freedom or not. It is your monthly savings rate. This simply refers to the portion of your income that you are able to save and invest every month. It’s that simple.
Save and invest a high portion of your income and you’ll be set. Fail to do so, and you’ll be running the rat race for the rest of your life.
The reason your savings rate determines whether you’ll arrive at financial freedom is because the lower the amount of money you rely on for your daily life, the less dependent you’ll be on money, and the less financial constraints you’ll need to be freed from.
Look, we get that life is expensive. And that the cost of living varies greatly around the country. The cost of food, gas, rent, education, and social activities isn’t going to drop. Not today, not tomorrow, not ever. Life is only getting more expensive and will continue to do so. But driving new cars, living in a big house, and living paycheck to paycheck is the easiest way to ensure you’ll never truly reach financial freedom. Heck, making $2million a year won’t mean jack if you spend it all and go into credit card debt.
The fastest way to financial freedom is to save a high percentage of your income. It will force you to live off of less, and accelerate the rate at which you build wealth. As a result, you’ll have more money and it will last you longer. A win-win.
What Would You Do With Financial Freedom?
Some people dream of having financial freedom so that they can finally stop working and focus on a special hobby they are passionate about. Others might love their job but want to get to a place where they know you longer need to worry about money. At the same time, others may have dreams of buying an RV and seeing the world.
No one can tell you what your dreams are. Your dreams are locked deep inside of yourself, and it’s your job to unlock and discover them.
The most important part is to begin to think of your dreams so that you can begin to work toward them. Regardless of how you plan to spend your time, energy and money, you need a plan. If you don’t know where you are trying to go, we guarantee you that you’ll never get to where you need.
What Financial Freedom Means To Us
After our father died, our mother worked tirelessly to raise us while keeping food on the table. To say she struggled is an understatement. To put it bluntly, she won’t be able to retire without our help.
So for us, financial freedom means putting ourselves in the position where our children will never need to provide for us as we age. It means not having to worry about whether we’d be able to pay the fee for our kids’ summer soccer team, like our mom did. We know how hard it is to constantly worry about money. This is what drives us to help you. We want you to reach your financial goals.
Financial freedom isn’t just handed to most people. From a financial perspective, it’s important to know how much you need to save for your future. Our retirement calculator is the perfect place to get an estimate.
The best way to increase the amount you save and invest is to hold yourself accountable. That’s exactly why you need a budget. This also ties into the behavioral component. If you have your sights set on a goal, it’ll give you the clarity you need to make spending and purchasing decisions. That $10 coffee might be less appealing if you know it’ll prevent you from achieving financial freedom. After all, lifestyle creep is the silent money thief that you let into your house.