This post may contain affiliate links to products that I recommend and I may earn money or products from companies mentioned in this post. Please check out my disclosure page for more details.
The concept of financial freedom is everywhere. For every millennial determined to get on the property ladder, every intern trying to build a career from scratch, and every parent desperate to provide a bright future for their family, the notion of being financially free seems to be a far-off dream. But does financial freedom actually exist?
Financial freedom really does exist. While the journey to financial freedom is different for everyone, and our end goals might be different, we all have the chance to achieve it. It requires a lot of grafting and perseverance, but financial freedom could be a reality for many people.
In the remainder of this article, I’ll give you a general idea of what financial freedom is, what it entails, what it’s not, what tools you need to achieve it, and how you might be able to get there.
What Exactly Is Financial Freedom?
There are many opinions on this subject, so although the concept of financial freedom might look different for everybody, the primary definition is relatively broad.
Financial freedom is a state of mind that enables you to have control over your finances. It allows you to live your chosen lifestyle and gives you economically-effective personal finance options that generate a certain amount of flexibility.
Financial freedom is a fusion of equitable and accessible financial resources and anticipatory financial accountability. It’s also a reason to avoid student loans.
Contrary to popular belief, having true financial independence isn’t just about having a lot of money; it’s more about having enough money to manage your chosen lifestyle.
It’s universally acknowledged that financial freedom is one of the only ways to live a life free of the difficulties many of us will always have to endure.
Let’s dive into the fundamentals of the concept of financial freedom.
Financial Freedom Means Freedom of Time
Being financially free enables you to use your time as you see fit. Having a range of personal finance options such as investment portfolios and real estate effectively allows you to decide what you want to do with your time.
I hear “I don’t want to work” all the time from people at work. If this is you, this is probably not your desired career. Financial freedom isn’t about doing what you want to do all the time. It’s about having options and using those options to make decisions about how you want to live your life.
If you have a range of passive incomes, maybe along with a successful side business, your lifestyle allows you to spend more time working on your personal passions. The more money you have, the more freedom you’ll have to spend time with your family and friends; it’s all about managing your priorities.
Think about it for a moment: if you have money passively flowing into your bank account from stock and investments, you’ll worry less about getting fired from your job or having funds for an emergency. You’ll be covered from all sides, and that enables you to take time for other things.
Financial Freedom Means the Ability To Take Control of Your Life
With enough funds to cover emergencies, daily life, and any luxuries you might want, you can have more control over the choices you make in your life.
Without financial worries, you can make decisions based on your needs and desires. Managing your finances in advance enables you to take time off if you need it, support your family and friends, and live the life you want to live.
To determine the amount of control you wish to sustain over your life choices, you must first decide what financial freedom means to you, what’s important to you, and how you want to get there.
Why Is Financial Freedom Important?
Financial freedom is important because it affects your confidence levels. Having no financial stress allows you to be more relaxed, empowered, and ready to take on new challenges without anxiety or fear.
It’s known that having money can make us happier, but for many people, the idea of attaining financial freedom sounds too good to be true.
- Many people have been brainwashed into thinking that being free from money-related woes is a luxury they can’t have, even though everybody has the potential to be financially healthy independent.
Being financially free enables you to live a life of your choosing without fear of repercussions. You can make better decisions and take control of your own financial well-being.
Misconceptions About the Concept of Financial Freedom
Converse to many assumptions, there are numerous misconceptions about financial freedom as a concept.
While you can materially achieve financial freedom, it’s more about your mindset than your end goals.
There are also many assumptions about the journey to financial freedom. Specific topics, such as the myth of the perfect credit score, the realities of the concept of net worth, and the invisible societal obstacles that might stand in your way, are subjects that need to be understood before attaining true financial freedom.
The Myth of the Perfect Credit Score
Let’s be honest: everybody dreams of having the perfect credit score. As a society, we’re told that achieving that top score is the only way to get a mortgage or loan, that to gain access to the best rates, we must have a near-perfect score.
In reality, while it may be valid to some extent, you don’t need a perfect credit score to become financially free.
If you have a low credit score or even just an average credit score, there are still many ways to find your way to financial freedom. You’re not necessarily limited just because of a few past hiccups.
Here are some of the ways you can create more financial freedom without worrying about a low credit score:
- Find a range of diverse investments that work for you.
- Start and maintain a profitable side business.
- Make sure you pay off your debts on time and don’t shy away from good debt, such as business loans.
- Live within your monetary means and plan for the future accordingly.
You can continue on your journal to financial independence, even if you’ve had bad debts in the past. In reality, your passive profits aren’t at all related to your credit score.
Therefore, while it’s indeed prudent to achieve an excellent credit score if you’ve had financial mishaps in the past, there’s still time to rectify the situation.
Financial Freedom Is Fundamentally a Type of Mindset
As previously mentioned, to achieve that all-important goal, you must first acquire the right mindset.
Removing yourself from the norm of mindless spending and throwing yourself into proper and detailed financial planning is essential to becoming financially free.
The goals you have in your mind should never be simply a number: there should be several small, realistic objectives in your plan that are relevant and measurable.
For example, many wonder, is eating out a waste of money? Well, it depends on how much you eat out and what you buy. It can be a waste of money through mindless spending or if your goal is to save money. The journey to achieve financial freedom involves putting aside frivolous dreams and working out what’s realistic to you.
To construct the mindset of a financial planner, you should ask yourself the following questions:
- Why is it essential for me to achieve financial freedom?
- What kind of life do I want to live in the future?
- For what am I saving?
- How can I plan for emergencies?
- How much do I need to be financially independent?
Remember that financial freedom is a concept that looks different for everyone. It’ll never look the same for two people; this is why it’s essential to look deep within yourself to find attainable targets that are personal to you.
Reaching that point is a matter of grafting and perseverance — and it’s certainly possible. Manage your expectations in your mind, and be reasonable with your goals along the way, and it may happen for you.
So many people don’t achieve financial freedom because they haven’t achieved the right mindset and asked themselves the all-important question: why is this so important for me?
Misconceptions of Financial Control
The realities of being fully in control of your finances are nuanced. It is difficult to achieve complete financial freedom, but the truth is that some of these reasons are entirely out of your control.
For example, the financial industry is constructed over the idea of spending vast amounts of money on things and situations that we have no control over.
The reality of the stock market is that we could never possibly predict how it’ll be in two years, let alone ten years. The financial industry might be hell-bent on making money from the ever-volatile stock market, but that certainly doesn’t mean that errors don’t happen.
There’s also a misconception that you can become financially free merely by slashing expenses.
The truth is, you’ll never achieve complete financial control just by cutting out that Starbucks cappuccino; it takes a whole lot more than that. There are ways how to deal with lifestyle inflation. However, you will always have some amount of essential expenses.
It’s essential to focus on things that you can control: risk assessment, time, and resources.
The Paradox of Financial Freedom
Financial freedom might not be exactly what you think it is.
While you might be able to achieve financial freedom to some extent, true financial freedom may not exist. There will always be monetary obligations pressed upon you, such as taxes, medical bills, mortgage payments, and household expenses.
Ironically, the journey to financial freedom might be more accurately defined as subjugation than freedom.
In reality, it might be rather a painful process. The idea of “getting rich quick” is just that; an idea. There’s no hard and fast rule to becoming financially free; it’s often a long process that requires balance, hard work, and determination.
Understanding the realities of financial wealth is essential to your journey. The bottom line is this: all your problems won’t be magically fixed if you have a lot of money. Life might be easier than if you were poor, but the truth is, with more money comes more problems.
The System Might Be Working Against You
The truth is, many things we’re exposed to in society are convincing you that you’re lacking something. Often, it’s something that only money can buy.
Consumerism determines the nature of our economy in so many ways, so in reality, you’re constantly being encouraged to spend your hard-earned money on something or other.
While you have the freedom to become financially free if that’s what you desire, you also have the freedom to get into a considerable amount of debt. Some claim that consumerist laws that supposedly allow you to pursue financial freedom also silently advocate indebtedness.
These claims might be valid because the economy’s eventual success depends on you spending your money.
It’s possible to counter this (many people have done so), but only if you can adequately balance spending, saving, and investing. Impulsiveness has never led anyone to financial freedom, so maintain that equilibrium, and you’ll be on your way to financial freedom.
There Are Never Any Guarantees of Financial Freedom
Financial freedom sounds great, but can you indeed call it “freedom” when you’re spending the best years of your life spending the absolute minimum, merely to stop working in your 40s?
If you’re lucky enough to reach the point of financial freedom, unfortunately, your problems don’t stop there.
There will always be anxiety surrounding the state of the stock market and financial pressures that might take you out of that hard-earned balance you spend so many years cultivating.
Financial freedom might mean not having to worry too much about money, but unfortunately, with more money comes more responsibility, and the pressures of being financially wealthy can be stressful in themselves.
Bearing this in mind when considering your future is paramount to your success. If you’re someone who thinks that financial freedom is all about becoming a billionaire with no worries, you’ll have a rather tough time in the wake.
How To Achieve Financial Freedom
There are so many ways to achieve financial freedom. It mostly depends on your specific goals, how much time you give yourself, and what options work best for you.
Realizing your goals of being financially free means incorporating a combination of two or more of the following:
- A diverse investment portfolio: stocks, real estate, and treasury bonds are the most popular.
- A profitable side business or job: remember that you don’t have to quit your job to become financially free.
- A decent credit score.
- A risk-averse attitude.
- Decrease in senseless spending.
- A solid plan for retirement.
- Financial literacy: do your research before committing to anything.
Change Your Financial Habits
To reach your goals in good time, you must take charge of your spending habits. It’s not necessary to cut out everything; it’s more shrewd to find a good balance.
Do your research, figure out what works for you, and change how you spend your money. The number one killer is mindless spending. Northwestern Mutual said in 2018 that 21% of people don’t have any savings at all for their retirement — don’t be one of those people.
If you are living below your means, know that it is one of the most effective methods to become financially free. If you look at most wealthy Americans, they don’t spend money like mad; they buy regular cars, wear normal clothes, and live in houses that aren’t as extravagant as you might imagine. Many of them have learned how to build wealth from nothing; from the ground up.
Learning to spend less than you save is a hard lesson to learn, but once you get there, it’ll enable you to plan better for your future.
Have Diverse Investments and Emergency Funds
Taking advantage of your ability to invest is the biggest secret of financial freedom.
The debate continues saving money or investing, which is more important for personal finance.
While the stock market might seem like a terrifying place, you’re far more likely to see a decent return on investments if you take good advice from the experts (personal stockbrokers and investment bankers).
Treasury bonds are a safer way to invest your money, although it doesn’t produce the same returns as some other investments might.
Since the government protects your money, your risks are reasonably low with treasury bonds. It also allows you to dedicate money aside for an extra side profit while maintaining access to it should you need it.
Something to remember: always try to take advantage of interest rates and diversify, diversify, diversify.
Additionally, having enough cash set aside for emergencies can quite literally be a lifesaver. Removing pressures from your financial future involves planning for any potential crises that might crop up.
Furthermore, learn to recognize financial scams and MLM schemes (multi-level marketing schemes). These will do nothing but only set you back in your financial freedom journey.
Plan for Retirement
Let’s be honest: the concept of retiring early is a universal ideal. We’d all love to quit our jobs and travel the world or work part-time remotely, spending time with friends and family rather than partake in a grueling nine-to-five.
Even if you don’t plan on early retirement, you should plan for a retirement. You can see what happens if you don’t save for retirement can be drastic.
If you plan to retire early, you should follow the FIRE rule: financial independence and retire early.
To calculate out how much money you’ll need to retire at a certain age, use the following rule:
- Figure out how much you’d like to live on annually during your retirement.
- Multiply this number by 25.
- The final number is your FIRE goal.
Bearing your FIRE number in mind on your journey to financial freedom will help you when setting goals along the way. It’s possible to retire on 500k; you just need to plan.
Increase Your Options
The fundamental rule of financial freedom is the creation of options. The more options you have, the more likely you will obtain your goal.
Using low-cost strategies, diverse investments, you can hugely increase your options. Boosting your income with a side business is also a smart way to become financially independent. Learning how to use Quickbooks for personal finance can also help track your bills.
Related Questions and FAQs:
What Happens If I Lose Money in the Stock Market?
Many people with a significant amount of money invested in the stock market are scared that they’re going to lose it all.
If you invest your money poorly, as is possible, you stand a chance of losing everything. However, if you diversify and take expert advice from a reputable source, you shouldn’t have any problems.
How Do I Invest My Savings Smartly?
It’s easy to panic when you lose money, but dealing with your losses is all part of being a smart investor. Inevitably, there will be a range of dips in the market that can leave you disheartened. But it would help if you remembered that it’s a case of “buy low, sell high,” as they say.
For the most part, experts agree that diversifying your portfolio is crucial to becoming financially free (see above). Allocating some of your funds toward different investments will protect your money.
How Do I Change My Financial Mindset?
Changing your financial mindset is done by sticking to a simple plan: set goals and take small steps to achieve them, which will result in you reaching your desired outcome.
By starting with small, achievable tasks (such as saving $1 from every paycheck), you’ll be surprised by how quickly the snowball effect kicks in.
What Should I Do If I Spend Too Much Money?
If you’re finding that you’re overspending, there are a number of steps you can take to resolve the situation.
- Step 1: Cut up your credit cards.
- Step 2: If you can’t live without them, look into opening up a cash-only account to only use when needed (rather than every day).
- Step 3: Track all expenses for at least one month to see where your money is going.
- Step 4: Do some research on budgeting to create a plan moving forward.
Who Should I Trust for Financial Advice?
Choosing an expert in the field is essential when you’re looking to change your financial situation for the better. Always consider that they must be qualified and experienced, and never sign up for anything without doing your research first.
Obtaining financial independence is no easy feat; however, it certainly can be achieved. Planning well in advance and creating realistic, attainable steps for yourself makes the process a whole lot easier. That way, you won’t have to sacrifice everything to reach those all-important goals.
Break your aspirations up into small, digestible chunks, give yourself time, manage your options, and take control of your life; financial freedom can be tough to achieve but follow this advice, and the process will be a lot easier.