Financial freedom is a unique type of freedom that isn’t bound by physical, tangible constraints. Our personal or shared finances can box us into a particular situation that feels inescapable and stifling.
Struggling to pay your living expenses and maintain cash flow — credit card, car loan, or even mortgage — can put significant pressure on your financial situation. Between booming interest rates and the soaring cost of living, this stress can snowball.
Yet, these situations don’t need to be permanent. You can start feeling free when you are financially comfortable. This means many things to different people, but often we associate this with owning a home, a car, with no outstanding bills. Some even acquire a source of passive income and are able to retire early. Achieving financial freedom may seem impossible if you work a nine-to-five job.
The reality is that achieving financial freedom is possible. You can get rid of your personal financial burdens and live up to your true potential. All you need are the right strategies to get yourself out of the many financial commitments you're tied to right now. Then, you can start adding to the safety net of your savings account and prepare for unexpected expenses.
Understanding what financial freedom means is an important step in achieving it. This article will answer questions like “What is financial freedom,” how it works, and more.
Keep reading and start your journey to financial freedom today.
Here's everything you should know:
Understanding Financial Freedom
Financial freedom or independence is a state in which you have enough money and investments to pursue your dreams, no matter how much they cost. If you are financially independent, you can buy your fantasy car or travel anywhere you want in the world. It also often means a high credit score on your credit report, a diversified investment portfolio, and retirement accounts like a Roth IRA.
When you're financially free, you are not living paycheck to paycheck. It will be easy to live off the passive income generated from your investments and save money in the short-term and long-term. These investments can range from physical assets like gold or real estate to others like the stock market and mutual funds.
The Consumer Financial Protection Bureau has a unique way of defining financial freedom. It uses four main elements that explain what it means to be financially free.
- Being in total control of your daily or monthly income and expenditure
- Making the right financial decisions
- Being able to take financial risk and absorb shock
- Staying on track with your financial goals
Having all those can translate to enjoying financial freedom. However, everyone can define financial freedom differently. Factors like your individual measurement of the quality of life and where you live should determine what you term as financial independence.
Why Does Financial Independence Matter?
People have different reasons for seeking financial freedom. The most common reason most people want to be financially free is because of the positive impact it can bring to their lives, more so their financial future. Money can’t buy happiness, but it can certainly make it easier to grab hold of.
If you're starting to understand financial freedom, you could be thinking it's all about wealth. Yes, wealth is an important aspect of financial freedom. We build wealth for the future to cement our retirement plan and ensure an inheritance for our children and family members. But financial freedom goes beyond wealth.
It is primarily about having peace of mind. Many people have money but struggle in financial bondage, and it doesn't even seem to get better for them. For instance, if you are stuck in a career that drains every ounce of your energy, then you're not free no matter how much it pays.
For someone who's financially free, you'll walk away from such a job without hesitating. But it will be easy to make such a decision if you fully rely on that job for survival. We hope this helps you differentiate between the mere fact of having wealth and achieving true financial freedom.
How Does Financial Freedom Work?
The journey to financial freedom isn't easy to undertake. Even still, taking control of your personal finance situation feels liberating in and of itself.
Here are the key steps to follow:
Define it - As said before, everyone's definition of financial freedom is unique. Thus, the first step should be finding out what financial freedom means to you. It could be becoming a high-net-worth individual, having a lot of savings, or paying your student loans.
Determine how much you need - The amount of money you need to achieve freedom will rely on how you defined it in the previous step. Calculate the cost of living in your area along with your goals for your future (including retirement and potential emergencies).
Save and invest - Being financially free means you don't live from paycheck to paycheck. This means you have a good emergency fund. Think about investing in valuable assets like gold or stock and reach out to a financial advisor. Also, you can use the pay yourself first method that advocates for saving before spending.
Spend less than you earn - Overspending or simply lacking a financial plan can affect your journey to financial freedom. It's always good to live below your means. Otherwise, it won't be easy to have enough to save and invest.
Those are the primary steps to achieving financial freedom. There's no surefire way to achieve financial freedom. All you need to do is determine the best way for you. Everyone's journey to financial freedom is unique, just like our financial goals are — find what's best for you.
How Much Money Do I Need to Reach Financial Freedom?
Take time to evaluate your needs and the goals you've in mind. A proper analysis of your situation will help you determine how much you'll need to pursue your goals. No matter what, you’ll likely need to start paying off all your debts, including credit cards and mortgages, first.
Once you are debt-free, the rest of the journey will become easier. Reaching the financial milestones you envision is far less stressful when you aren’t fretting over the compound interest that seems to grow every time you look away.
Additional Tips To Help You Achieve Financial Freedom
There are other ways to pave your path toward financial freedom. Read on for additional tips on taking control of your financial matters and moving on to financial freedom.
Understanding where you stand - You should think about where you are starting. Think about how much you have in debt and the savings in your bank account. These numbers will help you establish your starting point and work towards financial freedom.
Being positive - Sometimes, you look at how much debt you've amassed and think financial freedom is a farfetched dream. Positive thinking, including a gratitude journal, can make every day of the hustle and grind less tense.
Having clear goals - You need to write down your financial goals. This will help you have a clear pathway for success. You might not achieve everything you need in a month or two, but having a direction that you'll follow can make the journey twice easier.
Track your spending - being accountable with your money can help you achieve financial security. You can use financial planner software to track your spending or reach out to professionals.
Increase your income - More sources of income mean you'll put in more money. Think about having about seven sources of income as recommended by experts. Passive income like a rental property is a huge asset — in more ways than one.
Never stop investing - The investments you make today will help you build a good future. It's vital to think about rainy days and the inevitable retirement years. Save as much as you can and start investing it early to multiply as much as possible for a better retirement.
The Gold Standard
That's all you need to know about financial freedom. This article has defined it and provided a good background for a beginner. You can now start your journey to financial freedom without any worries. The insights shared in this post will be helpful in your journey to financial stability.
Do not forget how important saving will be in this process. This also includes multiplying your savings through investing. But also, don't be quick to invest; research the best investments.
Your savings plan should be part secure and slow and part risky. A good, balanced investment portfolio is key to accessing financial freedom. Investments like gold with Gold Acre can be a big help. Gold has always been intrinsically valuable and only continues to rise in value.
What Is the Consumer Financial Protection Bureau (CFPB)? | The Balance
How to Get Passive Income in Retirement | The Balance
The Definition of Wealth: What It Really Means To Be Wealthy | Money Matters