Most of us have come across the term “financial freedom” at some point in our lives, perhaps on a bus stop ad, from our financial advisors, or during that weekend seminar that friend dragged us to that one time. It’s something to strive for, we were told. Something in the distance. Something that will make life easier.
If you’re like me, you might have wondered, well, what the heck is all this financial freedom talk about anyway? Does it just mean that I won’t have to worry about money anymore? And isn’t it just for down the road, when I retire?
It’s like in Forrest Gump, when he gets that letter from Lieutenant Dan saying he doesn’t have to worry about money anymore, and Forrest says, “That’s good. One less thing.”
Sounds so simple, right?
Money worries are one of the biggest stressors people face, and it can lead to relationship strain, anxiety, and guilt. Even amongst the wealthier folks, many worry about money because they’re striving for more, or they’re worried that one wrong move will cause them to tumble to the bottom.
So then, if wealthy people stress about money, does that mean you can be rich and also not financially free? Absolutely.
If you’re generating hundreds of thousands of dollars a year, but your expenses are high, and you don’t really keep tabs on what you’re spending, you might still feel stressed about money and thus not be financially free.
Financial freedom is about more than just a number.
My mom always thought, if she just had $1 million in savings, she would be set and wouldn’t have to worry about money anymore. While that might be true, the reality is, even if she had $100 million, she would probably still worry about money.
To me, financial freedom is a mindset. It’s about knowing the lifestyle you want, what that lifestyle costs, figuring out a way to generate passive income above and beyond that amount, and then, and perhaps most importantly, allowing yourself to be financially free.
A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life. -Suze Orman
Step 1: Design Your Ideal Lifestyle
Believe it or not, many people get stuck in step one – figuring out the lifestyle they want. Ask most people what show they’re going to watch tonight, and they’ll have an instant answer for you. Then ask them about their ideal lifestyle, and watch them squirm and dart their eyes nervously. Hmm, that’s a good question, they’ll say.
And this is perhaps the biggest barrier to financial freedom for most people, is that they just don’t know what they want. It’s easier just to go to work, do their job, then come home at night and watch a few shows.
Lifestyle design is hard, and that’s why most people avoid it. There are no right or wrong answers. There are no rails. You get to make it uniquely you, which is the fun (albeit daunting) part.
So, start with where you are. What parts of your life are just okay? What parts are great? And what parts are mind-blowingly amazing? Now imagine what your life would be like if all parts of your life could be amazing. What would you do day to day if you could remove money worries from the equation?
That’s the vision that forms the foundation of financial freedom.
Step 2: Figure Out What That Lifestyle Costs
Once you have a vision of your ideal lifestyle, it’s time to price it out.
Maybe you live in a two-bedroom apartment now, and you’d ideally like to be in a four-bedroom house. Maybe you’d like to live in a foreign country for two months out of the year. Maybe you just want to be able to take your kids to the park on a Wednesday afternoon and not have to worry about rushing back for work obligations. Whatever those dreams are, figure out what they would cost, and factor that in.
Maybe your current monthly expenses come out to $5,000, but you realize that your ideal situation would cost $10,000 a month. Oh man, that seems hard. Maybe you should just go back to watching that show… No! Resist. Instead of throwing away that $10,000 dream because it seems too hard to achieve, point your compass toward it, and figure out a way to get there.
Step 3: Generate Passive Income
Now comes the fun part: the quest for passive income. Now that you know what your ideal lifestyle looks like and what it costs, it’s time to figure out how to generate enough passive income to cover the cost of your ideal lifestyle.
If your ideal lifestyle costs $10,000 a month and you currently earn $7,500 a month, that means you only have $2,500 to go, right? Wrong. You have $10,000 to go. Why? Because the moment you stop working your $7,500/month job, you have no additional income. If you want to maintain your currently lifestyle, you’re bound to that job.
Passive income, on the other hand, is completely separate from your active income. Passive income is the type of income that arrives, even if you stay in bed all day. Passive income takes you from “I have to work” to “I get to work.”
In order to attain financial freedom, you would ideally have all $10,000 come in via passive income. To get to $10,000 of passive income per month, you might have to start a business or two, invest in real estate, or employ some combination of different ventures. Every little bit counts. If you buy a rental house that generates $200 per month, you’re now $200 per month closer to financial freedom.
Think of it like a giant real-life game of Monopoly.
Step 4: Allow Yourself to be Financially Free
Once you’ve been able to generate passive income beyond your target lifestyle amount (which also includes a certain amount for ongoing savings, of course), you’ll technically have become financially free. And this is where the mindset shift comes in.
Most people spend their entire lives chasing financial freedom, that when they attain it, they don’t know what to do with it.
What do you do with all your time now? Should you keep working? Should you stay home with your kids? The answer is, it’s up to you. Financial freedom affords you that choice.
If you’re fortunate enough to love your job, now you get to work rather than have to work. If you’ve always wanted to start a nonprofit, now you can do that without having to worry where the money will be coming from.
Financial freedom allows you to live the life you’ve always wanted to live, rather than the life you feel you need to live. And just as it took all those years growing up for our parents to drill those important lessons about money and saving into our heads, it’ll take a while to shift into the mindset of being financially free. Of not having that sinking feeling every time you swipe your credit card, of taking an impromptu day trip on a weekday, of giving back in more ways than you’d ever imagined possible.
Okay, you’re near the end of this article now, and you’re probably about ready to close this window and forget you ever read this. But wait!
Just this once, consider taking the first step. Use the worksheet below, and start thinking through your plan for achieving financial freedom. Click here to download.
Financial freedom is available to those who learn about it and work for it. -Robert Kiyosaki
Financial freedom is not about greed. It’s not about sitting around all day watching TV. It’s about lifting the money worries off your shoulders so that you have the freedom to pursue those “someday” dreams you’ve been putting off. It’s about leaving a legacy for our children. And it’s about enabling us to live our lives to the fullest, with no regrets, and on our own terms.