Who among us would not like to be financially free? To always have a wallet full of money, to travel the world and not to worry about retirement? It is a mistake to think that financial freedom is reserved for an elite and that only a little manage to achieve this status.
Financial freedom is necessary not a luxury; it is a necessity for anyone who wants to live a rewarding life without worrying about money. But the problem is most people have no idea how to start generating a high income, how to save their accumulated capital, let alone how to manage it so that money multiplies. What is financial freedom and how to easily reach path to financial freedom step by step?
What is financial freedom?
Before moving on to definition of financial freedom, it is worthwhile to go back to the meaning of the word freedom. Freedom is ability of a subject to initiate, modify or terminate an activity at any time during its course, as well as to refuse it.
By correlation, we can define financial freedom as a way of life that allows one to carry out all desired activities and make life choices without worrying about income and money. Contrary to some beliefs, it is not quite the same as wealth or having a super flourishing business. Indeed, not everyone who owns lavish houses, drives expensive cars and wears designer clothes has achieved status of total financial freedom.
Financial freedom and high standard of living
We can just as easily afford these luxuries thanks to “banks famous generosity”. However, this means that we will be living in constant debt with loans hanging over our heads. Besides, can we talk about any freedom if we are constantly dependent on salary offered by our employer? Of course not.
Seen in this light, we can say that financial freedom is a life state in which you no longer need to depend on a job to support yourself. Income and money you earn are sufficient to cover your daily expenses. Moreover, it far exceeds them and allows you to save a lot.
Of course, for everyone, this threshold can be set elsewhere, as one person does not need millions in an account to be happy, while another is desperate to become a millionaire or a confident businessman.
Therefore, in order to be fully financially comfortable, passive income must be addressed first. This is type of income that generates money on a permanent basis despite absence of active work on one’s part. In this case, once work has been done, it is continuously paid off and generates a profit and lot of money. And this is essence and source of virtually all financial freedom.
Financial freedom and idleness
Concept of financial freedom is subject to much confusion. The idea is not that having reached level of financial freedom, you can automatically lie on sofa in front of television and stop doing anything important and useful. Quite the opposite!
The main idea is that with financial freedom you can now choose projects and activities without thinking about their financial profitability, but rather by listening to my keen and sincere interest. Therefore, profitability and cost as decision criteria become much less important.
What is the difference between financial freedom and financial independence?
Very often, financial freedom is wrongly compared to financial stability or independence. It is essential to be aware that these are completely different concepts.
Financial independence means not being financially dependent on your family, your partner, or state. It is when you are able to support yourself, start earning your first salary and no longer need to ask anyone’s permission to spend money.
What does financial independence get you? It is not just about money. This independence gives us confidence, a sense of security and self-worth. We no longer have to depend on anyone else. This leads to the feeling of independence, but also responsibility.
At the same time, financial freedom is stage that follows financial independence, when we impose a certain discipline on our life. One could say that it is a level above financial independence, because at this stage we are no longer dependent on anyone, including an employer. This is the point where we are able to live on passive income without having to actively work or have a permanent job.
Is financial freedom a myth or a reality?
Given details mentioned above, there is no doubt that financial freedom is a priceless prestige for any human being. Thus, many people, specially youngs, wonder whether financial freedom is really possible. For many, financial freedom seems to be something totally unattainable.
This is because they think that it is a luxury only for rich people, stars or old men (+65 years old people). However, you don’t have to be Elon Musk or Jeff Bezos to achieve financial freedom. In fact, financial freedom does not necessarily mean wealth.
Moreover, wealth also means different things to different people. For one person, it will mean owning a luxury villa and a car; for another, a high salary and ability to travel or pursue one’s passions will be enough.
What are obstacles to financial freedom?
Following aspects are stumbling blocks to monetary and financial freedom:
Rising inflation, rising monthly credit payments: rising prices and services are not great ally of those who want to be financially free.
Over-indebtedness: more you get into debt, more difficult it will be to achieve freedom. Lack of personal development : it is difficult to strive for financial freedom without acquiring knowledge about investing, saving, money and time management.
Not enough income: it will be difficult to achieve financial freedom goal if your salary or turnover is only enough to solve your minimal problems and expenses.
Unexpected expenses: it is clear that unexpected expenses spoil your planned budget.
Now you know what enemies of financial freedom are. Additionally, it is important to put in place a strategy and methods to quickly reach financial freedom road. This can be done by making plans to overcome obstacles to financial freedom and get ahead of the game.
Steps et habits that can help you to reach financial freedom
Financial freedom road will not be far if you follow specific methods. Here is a step-by-step plan to achieve financial freedom:
Define life goals
General desire for financial freedom is too vague, so it is indispensable to be specific in your goals. Write down how much money you want to have in your bank account, how often you want to travel, how much you want to spend on monthly expenses, and at what age you want to ‘retire’. The more specific your goals are, the more likely you are to achieve them.
Controlling expenses
Setting a monthly budget and sticking to it is the best way to ensure that all bills are paid. This is a prerequisite for building up your savings. It is a routine that helps you achieve your financial goals and prevents you from making unplanned expenditures. Therefore, you need to wear hat of a budget expert to help yourself to reach financial freedom.
Mastering a frugal lifestyle is not difficult. Many wealthy people have made a habit of living within their means before they acquired their wealth. To do this, you need to regularly analyze your spending and find smart ways to save money without losing quality of life.
Build up an emergency fund
Building up an emergency fund will ensure that you have enough money in case something unexpected happens. Think of it as a financial safety net. In an ideal scenario, you should save at least three months’ income.
This allows you to continue to pay your bills if you or a family member loses your job, gets sick, is made redundant, or if you have to replace a car or a new roof. Many unexpected things happen in life. You will want to be ready when time comes. Don’t touch this money. It’s for emergencies, not so you can have a good holiday.
Automate payments
To make it easier to achieve financial freedom, you need to pay off your loans, if you have any. This means distributing money on payday. If you are paying back a loan, send a payment right after you receive your salary. The same applies to savings. It is better to put aside a certain amount at the beginning of the month and spend the rest quietly.
The same applies to utility bills, mobile communications and internet. All necessary payments can be set up in bank’s application, and you don’t even need to send them manually. And there will be no temptation to put something off until later. So, theses habits can help you to reach financial freedom.
Invest wisely earned money
Financial crisis makes you wonder if it’s worth investing. But historically, there has never been a better way to grow your capital. Also, magic of compound interest can help you increase your savings considerably. It may sound confusing, but it’s actually quite simple: if you invest consistently, you get a percentage of the growing amount every year.
So, open a brokerage or individual investment account and learn to invest yourself. There are many knowledgeable articles, websites like ours and courses that you can learn for free. Create a managed portfolio and add to it every month.
Follow news
Achieving financial freedom also means keeping up to date with financial news, tax news, etc. Check regularly for changes in tax legislation so that you can take advantage of tax deductions and other government benefits in a timely manner.
Follow financial news and stock market events and do not hesitate to adapt your investment portfolio accordingly. Knowledge is the best protection against those who prey on unsophisticated investors to make a quick buck.
Create passive income
Many people who have achieved financial freedom have done so by creating passive income streams. This can be done in several ways and this can bear fruit, over time (months, years…).
For example, on investor side, you have dividend stocks, bonds or real estate. But you can also generate passive income by creating goods or services that consistently generate sales.
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Conclusion Financial Freedom
Financial freedom is a term used to describe a state in which a person has sufficient assets to cover expenses, responsibilities and beyond.
This level of living and stability includes ability to pay unexpected costs such as doctor bills, car repairs and other emergency expenses.
Process of achieving financial freedom can be summarized in several stages. Indeed, there are certain habits that can help you to be financially free and achieve your greatest life goal by acquiring financial wisdom. In short, you need to follow a budget, live within your means, save money for retirement (and other goals) and make most of your income and money in general.