What does financial freedom mean?
Does it mean that you have no credit card debt? Or does it mean being able to buy what you want when you want it? Does it mean having a mortgage free house? Or does it mean having a million dollars in your bank?
Financial freedom means different things to different people. However, what is common is that everyone desires it. People envision financial freedom in different ways. Some want to be able to take a nice vacation; some just want to get out of debt. Some would like to be able to purchase a nice home, a sports car, quit their corporate job, and work for a non-profit or just simply be able to take care of their family’s needs.
Yes, people certainly do desire financial freedom, but the reality is that most people never experience it at all in their lifetime. Not necessarily because they don’t make enough or that they are living from paycheck to paycheck but because they were never able to break the financial bondages that hold them down. Financial bondage takes many forms- debt being the worst one. However, even without debt, there is always that big expense looming around the corner, whether it is the engagement ring, the big family vacation, school, and college expenses for the kids, etc.
To experience financial freedom, one has to break these bondages. This does not mean one has to turn away from responsibility, in fact quite the opposite.
You have financial freedom if you can pay for all expenses without incurring debt, without stressing out, without making a lifestyle compromise, without letting your dream go. That is Financial freedom!
Simply put – once you make enough money required to meet your expenses without being actively involved in generating that income, you have achieved Financial Freedom!
Financial freedom is possible, but you have to be willing to be honest and make some changes. You must be proactive to attain it.
Step I: Get a grip on your financial situation
Start by clearing out things. If you have debt, make a list of it with minimum payments and interest rate listed against it. Estimate your total monthly expenses (you don’t necessarily need a full blown budget) and get a sense of where your money goes.
Step II: Save money for emergencies and get rid of debt.
Build a cash cushion, a.k.a an Emergency fund. Make a commitment to do what it takes to pay off your debts. Debt is the worst of all the financial bondages. Once you’re debt free, put money aside for Step III.
Step III: Automate income
Look at ways to generate passive income. In a low interest rate environment, savings account and CDs may not be the most attractive investment but they’re a good starting point. If you are a freelancer, you can look at outsourcing some of your work so that you are free to get more clients. Build a diversified portfolio of dividend stocks. Buy assets that produce income, like a cash flow positive rental property not a gas guzzler pickup truck.
Step IV: Go back to Step I and Step III again.
Don’t stop here, it’s important to go back to Step I and get a handle on it again. Then back to Step III.
I want you to define what financial freedom means to you. And what are you going to do once you achieve it. That should be a good motivator to get started.