How much financial freedom do you feel like you have?
What is financial freedom in the first place? It seems to be something that we’re all after, and most people define it as a number. This number is the net worth where you no longer have to rely on income from working.
This definition is in no way wrong, but I do think it’s incomplete. I don’t see financial freedom as something only to be attained someday in the future. I see it as a state of being I can experience on my way to that point as well.
Financial Freedom is a Daily Choice, Not Just an End Goal
You Don’t “Have” To
Many people, maybe even you, are working where they are because they have to. They can’t take the time to explore what they really want to do because there are bills that need to be paid, and the only way these will be paid is if they make it to work this week.
This is the paycheck to paycheck situation 70%-80% of Americans are in.
When you combine that reality with the total acceptance of consumer debt as the “norm” in our society, you have a recipe for financial bondage.
Everyone wants to live the lifestyle they see on an Instagram feed, so they turn to the quickest way to be able to attain it: debt.
Now we have a vicious cycle of people living a lifestyle they can’t support on their paycheck using credit cards and outrageous mortgages to make it work.
If your goal is simply to have every material thing you want and to live in a nice house, then by all means follow this strategy.
If you want to have financial freedom, I suggest a slightly different path.
Refuse to Feel Trapped
If you want to live a life of financial freedom, it starts with a simple choice.
One of the foundational principles that guides my life is that I want to have the freedom to make choices rather than doing things because I have to.
I graduated college debt free. However, after graduation I started dating a very pretty girl, and I soon decided I wanted to marry her. In the greatest sale I’ve ever made, she felt the same about me.
Now, she didn’t graduate debt-free. In fact, she had $28k in student loans and credit card debt following her around, which became OUR debt when we got married.
Many in this situation will just pay the minimum payments, content never to see that few hundred dollars a month for a decade or more. This is all a function of the “this is just how things are” trap so many live in.
I’m sure people you know are carrying around credit card balances, car loans, student loans, and all sorts of financial strain because they feel like that’s just what you have to do to live the life you want.
Too many never have the thought of making different decisions so they can take control.
We Went a Different Route
We got flat out mad at the debt and did everything in our power to get rid of it. Why? Because we wanted to get to decide where that money went when we brought it home.[clickToTweet tweet=”I didn’t want student loans tapping me on the shoulder every pay period for a decade.” quote=”I didn’t want student loans tapping me on the shoulder every pay period for a decade.” theme=”style3″]
I wanted to be free.
The cool thing is, in the moment we decided that, we were free. Sure, we were still working through the debt payoff, but we were living in freedom.
We were experiencing what it feels like to chart your own course instead of letting it be charted for you.
We were empowered to find satisfaction in the progress we were making rather than the stuff we were (actually, weren’t) buying.
We still had debt, but we were in control and knew it wouldn’t be long until it was gone.
Financial Freedom Is More Than A Number
You see, financial freedom is about being in control. Yes, once my net worth is high enough to support me without a paycheck I will be officially “free.”
But I can live with that kind of emotional freedom now because I’m not knocked around by my money.
I’m in the driver’s seat, and there’s a big difference.
Living this way makes saving an emergency fund a fun activity.
It makes you get excited about controlling your grocery budget and investing in your 401(k).
Financial freedom happens when you get more satisfaction from building your net worth than you do buying something cool.
Intentional Decisions Now Breed Awesome Opportunities Later
So how do you achieve financial freedom? It all starts with knowing where you want to be, then making decisions today that will lead you there.
We began our marriage knowing that we wanted to be debt free as soon as possible. That caused us to do things differently than most of our friends, and we were debt free in under two years.
I want to be able to adopt a child or fund an adoption for someone else someday, so getting to a place where I can invest above my personal retirement investing to prepare for that is a focus.
We want our family culture to be one of peace and unity. Therefore, we make intentional decisions about taking regular vacation, and we’re currently saving aggressively for a large down payment on a house rather than jumping in with little to no equity.
Financial freedom isn’t about having everything you want. It’s living in a place where you clearly know where you’re going, and you have a plan for the steps from here to there.
None of us are trapped. We just have to decide to live free, and that’s what I intend to do.
How to Achieve Financial Independence
Achieving financial freedom is a goal for most people. Yet, too many of them fail to reach that goal. The following are 4 habits that help pave the way.
1. A Strict Budget
You might actually have the means to accomplish the financial goals you want to accomplish, but you’ll never know it if you aren’t keeping track of your spending habits.
If you’re trying to save up for a new car and the money never seems like it’s there, you need to be sure you aren’t flushing it all away on takeout and bar tabs.
A budget needs to be used in conjunction with any financial growth effort you undertake. Without it, you won’t be able to accurately measure your progress or make projections based on the increase in your income.
Your budget should include how much you tend to save, invest, or use for ventures. You might need a little capital to get more capital.
2. Side Income
More work means more money. You may not have time to pick up another job, but a flexible side hustle might be workable.
There are several ways to generate additional income streams, and it all depends on the amount of time and level of involvement you would prefer. If you’re able to, try to combine several streams of side income to increase your results.
You can make excellent side income on the internet. Blogs have the potential to be a decent source of side income, and there are two ways to approach moneymaking. You can either create a valuable ad-supported blog that caters to a particular niche, or you can learn affiliate marketing and use your blog to showcase products or services that offer a commission on sales.
If you’d rather not run a blog, you can still make money online. If you have any freelance skills, it’s relatively easy to work small gigs for some side cash. Some people freelance online as a full-time job. If your time is already spoken for, you can freelance whenever you have an hour or two to devoted to a project. You can set your own rates and choose the type of work you want to do.
As far as passive income streams go, there’s always an app-based car or food delivery services. If you don’t want to take a hands-on approach, you can make money in the sharing economy by renting out things you don’t use, including empty space in your home or garage. It’s relatively low maintenance – all you have to do is make sure someone’s stuff is safely kept.
3. Trading and Investing
You can multiply the money you already have by trading and investing. The internet has made it incredibly easy for people to trade or invest in companies of all sizes.
A lot of helpful articles will teach you to trade, and if you do enough research about a company you want to get involved with, it becomes easier to make wise decisions.
Pick a few investments that look interesting and relatively low risk, watch them for growth over a period of a few months, and invest what you can invest.
Putting your money into a wise investment and slowly watching it grow will net you much more money than you would see in a savings account.
All you need to do is periodically check on your investments. If you’re underwhelmed by the results, change things up.
Cash out whenever you want to.
4. Investing In Personal Ventures
Many people become independently wealthy by investing in their personal ventures. They start businesses in fields that have always interested them. They purchase and refurbish properties, either to rent or to sell.
They buy land because it’s a limited resource that can resell for a higher amount. They put their money where their mouth is, and they become their own bosses.
They start from the position of CEO, and sometimes invite other people to work beneath them. If you’ve always been passionate about starting a business, go for it. Other people seeking financial freedom may become your investors, and everyone wins.
No matter what method or combination of methods you use, financial freedom is going to take you a while. Get rich quick schemes are all too good to be true, and you need to be willing to explore and take some risks in order to see the reward you want. Determination and willpower are the two most important tools in achieving your financial goals.
How do Normal People Achieve Financial Freedom?
So I recently wanted to interview someone else on the topic, how many normal everyday people achieve financial freedom?
I set out to interview James who is 27 and has a mix of his own personal mistakes that led him down the path of personal finance. His upbringing was good, but when the 2007-2008 housing market crashed, as a senior in high school, he witnessed it from the sidelines while his parents, who did their best for him, tried to pick up the pieces.
He put the idea in the back of his mind that he wanted to be unprepared for any event like that ever.
Fast forward to graduating from a community college (thankfully all paid for by grants and scholarships) as an x-ray technologist and getting his first job at a local hospital.
He finally had money and a real paycheck. He spent almost every bit of that $40,000 a year on traveling, getting tattooed very frequently, eating out, and basically buying any impulsive thing I wanted at the time.
Then comes a two week trip to Hawaii. He likes to name this period of his life the Hawaii swipe-a-thon. He racked up nearly $5,000 on his 20% APR credit card. (He had a blast though!)
Reality set in hard the next 2 years as he struggled to pay it off. This set the fire off inside of me, and he dove head first into everything he could read on personal finance.
Here is how the interview went with James:
How would you describe your current financial situation?
Currently, I'm debt free (besides a car loan, but not for long!) and have a much healthier relationship with my money and debt for that matter. As the years go by, I become more and more a minimalist, cutting the useless things I don't need out, while focusing on what matters. That trip was in 2013, and I had no savings, and no pot to piss in. Currently, I have a very healthy 5 month emergency fund, put 10% into my 401k's (I have two jobs now). I opened a Roth IRA with Vanguard and currently have about 75% of my salary in net worth after 2 years.
Do you consider yourself to be money-savvy?
I would consider myself to be money-savvy with my money, personally. I started out budgeting with apps like Mint and a good ole piece of paper, but now I'm on autopilot and basically mentally know where all my money for the month is going to go . I still make mistakes and have hiccups, but I consider this just more room to grow in the financial-savvy realm.
What financial advice would you have wished to hear when you started working?
HAVE AN EMERGENCY FUND! Seriously, we may seem invincible now, but things come up unexpected like job loss or medical issues or issues like my parents had to face. And if that happens, it's still gonna sting, but at least I have a safety net and the peace of mind that no one can take from me.
Oh also, maybe not financial advice. But someone should have told me to learn to cook. No joke, I save way more money cooking for myself. The food is semi-edible, but much more nutritious. My budget is healthier because of it. And health is wealth right?
What financial achievement are you most proud of?
Right now, actually. I committed myself to paying off my 2015 Toyota Corolla by the end of 2017. Setting the bar high has taught me how much I can actually save ($650-1300 each month), and how much will power I truly have.
What expense can you not live without?
I'd say internet is a huge one and also food. Dining out is still an expense I'm working on. I just love food so much.
What are your long-term financial goals?
Long term goals are to be financially stable and live a comfortable life. I would also like to hopefully start creating some passive income with dividend investing and getting my feet wet in real estate.
What are your short-term financial goals?
My biggest goal right now is paying off my car. I started at $18,000 and am now down to $9,997. Secondary to that reaching the coveted one years salary net worth benchmark.
How do you manage paying off student loans and/or consumer debt? Any tips?
The biggest tip in terms of paying off debt I can give, outside of making more money, is to really get to know your spending habits. Find areas where you can cut back, if it doesn't add true value to your life, cut it back or out completely. If you are eating out constantly. Stop and cook at home with some friends. If you are at the bars every weekend. Stop. This is the biggest area of financial bleeding I see in most my peers. If you have to, find cheaper alternatives, like hanging out at each others house for a wine night.
Closing thoughts on how millennials can achieve financial freedom?
There are two major proponents of personal finance to achieve your goals: Increase your income or decrease expenses. Most would probably agree increasing is the way to go, but that's not always tangible immediately. I'm completely happy with my now $47k/yr salary because I love my job. I'm still investing and I'm still saving and working towards goals. I find I'm happier with less things. There are plenty of people who may think its a pipe dream to get to any kind of financial independence on an average income, but it's not a dream. You can do it, you just have to take a hard look at your finances and become interested in them. You owe it to your future self.
It’s Up To You How Much Money is Enough for Financial Freedom
So what does financial independence mean to you? With the right mindset and goals, we can use both fear (to push away from working until you drop) and joy (the pull of doing what you want when you want) to become financially free.
Money gives you the options and choices but real freedom comes from truly living your life to the full.
If you really want to learn more about financial independence and how much money is enough to be happy, I would recommend looking into the top 8 personal finance books that money can buy.
I hope I answered your question of, how much money is enough to achieve financial independence and how to achieve financial freedom.