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WHAT IS FINANCIAL FREEDOM?
Happy National Financial Freedom Day! If you have never heard of it, it’s a day in which we get to celebrate either reaching our financial goals or the ways in which we will reach these goals. And it typically happens on July 1st of each year. So, in honor of this very special day, I want to share with you a few strategies to help you get closer to financial freedom.
Now, financial freedom is a phrase that is often tossed around in the personal finance space, but what does it really mean? What is the true definition of financial freedom? If you’ve ever wondered about this, then today, I’m going to break down what financial freedom really is and give you a 10 Step Plan to Achieve Financial Freedom.
So what is financial freedom? Financial freedom is when you have enough cash flow to truly live the life you desire without depending on your paycheck. It is the point at which you truly have full ownership of your finances. However; let’s not get it confused with financial independence, because although they are very similar in nature, there are a few key differences which I will point out later. Financial freedom could mean having the ability to:
- Travel the world for months or years at a time
- Work when and where you please
- No longer trade time for money
- Give generously
- Retire early
- Stay home with children, grandchildren or an aging parent
- Be your own boss
Financial freedom can mean different things to different people. It’s specific to the needs of you and your family. The 10 step plan we will discuss below is going to help you figure out how to make financial freedom work for your situation.
WHAT IS THE DIFFERENCE BETWEEN FINANCIAL FREEDOM AND FINANCIAL INDEPENDENCE?
I’ve explained the definition of financial freedom above in its simplest terms. However; to get a little bit more specific, financial freedom is when you have built up enough savings, investments, passive income, and cash to live the life you truly want. On the other hand, financial independence is when you have the ability to retire early and still maintain your current lifestyle. This is the point at which you have enough money coming in to cover your current expenses and no longer need to wait on a paycheck.
If you are trying to upgrade your lifestyle, then you should work towards financial freedom. However; if you just want to maintain your current lifestyle, then you would be better off striving for financial independence. The most important point to note is that both allow freedom of time, which is a priceless asset!
10 STEP PLAN TO ACHIEVE FINANCIAL FREEDOM
1. Develop a clear vision
Before you can reach any goal, you have to develop a clear vision for your goal. In order to develop clear financial goals, here are a few items you must consider:
- Write down your goals.
- Know why you want to achieve the goal.
- Understand where you are currently versus where you are trying to go.
- Get on the same page with your partner or spouse.
- Ask yourself “By when” do you want to achieve this goal.
“Knowing your why” is one of the most important items on this list, and will really help you to challenge yourself and create a clear plan to help you achieve your goals. If you don’t have clear, concise, and specific answers to the items above, then it will be very difficult to reach your financial goals.
2. Get rid of any limiting beliefs
In order to achieve any financial goal, you must go through a complete mindset shift. You have to learn how to remove the shackles from your mind and replace any negative thoughts with positive thoughts. You have to constantly remind yourself that you can achieve the goal of attaining financial freedom. Affirming yourself and your goals will need to become a daily task!
3. Live within your means
Every month (before the money comes in), each spouse should sit down together to discuss the spending plan or budget. Track your spending, cut back where you can, and only purchase that which you can truly afford. Be sure to include all of the absolute necessities along with a few items you want so that you don’t feel financially deprived.
It is important to create a spending plan that works for your household and not someone else’s. You should also plan for unexpected expenses so that you don’t blow your budget as soon as disaster strikes. During your journey, keeping your finances organized and within budget is going to be key in determining when or if you get to reach financial freedom.
4. Pay off your debt
Debt is a hinderance to your financial freedom. That’s why it is important to eliminate all of your debt in order to achieve true financial freedom. Paying off your debt not only allows you to free up extra money, but it also allows you to increase your net worth. Don’t give yourself anything extra to worry about. Create a plan and get rid of the debt!
5. Generate passive income
So, what is passive income anyway? Passive income is not tied to hours worked. It is earned from sources other than an employer or contractor. A few examples might include interest, dividends, capital gains, royalties, rental income, business income, and other non-traditional income-producing assets.
You’ve heard more than a few experts recommending that we all should have seven streams of income. While this is a great recommendation, I believe that the ultimate decision is up to the individual or couple who is trying to achieve financial freedom.
Please know that creating passive streams of income does require some work. However; the work is being done on the front end and technically you are not trading time for money.
6. don’t stop Giving
While it’s important to live within your means and not spend frivolously when trying to reach financial freedom, it is also important to give. When we clench our fists tight and try to hold on to everything we have, we end up embracing a scarcity mindset.
However; when we make the decision to give, even out of feelings of lack, more often than not, we give ourselves room to receive financial blessings. Those blessings can come in the form of an unexpected check, or even a week of free groceries from a family member or friend. You never know who is waiting to make you smile! So, don’t stop giving while on your journey to achieve financial freedom.
7. Save and Invest
Saving will be of special importance while on the path to financial freedom. However; this will require some sacrifice especially since we live in a society that encourages us to spend.
Your savings account may consist of an emergency fund in which you use for emergencies only. The deposits should be automated so that when a paycheck hits your account, a certain percentage of that paycheck is automatically deposited into your savings account.
Your investment accounts should work in a similar way so that funds are automatically deposited into your accounts. Of note, please remember to take advantage of the company match, while you are still employed. Otherwise, you will be leaving free money on the table.
For both your savings and investment accounts, start with a savings goal, and then increase it over time. The key is that you have to remember to pay yourself first. Get creative during this time. Your financial future is depending on it!
8. Plan for the Future
Obtaining health insurance, term life insurance, disability insurance, etc. is going to be critical during this time. As we grow older, the rates tend to increase for the different types of insurance we need. So, grab those now and lock in the rates while you are still employed.
9. Associate with like-minded people
One of the key ways to keep yourself motivated while trying to attain financial freedom is to surround yourself with like-minded individuals. You have to remember that you are trying to achieve something that’s probably different from anything your friends and family may have done. So, they probably won’t understand your hard work and sacrifice. This is why you have to find a network of people who share a similar mindset. I’ve seen tons of these groups on social media sites like Facebook. Believe me, this can make all the difference in determining whether or not you achieve real financial freedom.
10. Seek help from reputable industry professionals
Nobody on earth is well-versed in all areas of life. So, in order to truly reach your goal of becoming financially free, it is important to seek out reputable industry professionals to ensure that you are on the right track.
For instance, if you are trying to maximize your budget, you may want to check out a money coach. On the other hand, if you need help with investing, then you may want to find a licensed investment advisor. The key is to find an expert in the industry in which you lack knowledge. However; please do your due diligence on each of these professionals first as some of the industries do not require a license or certain credentials.
Final Thoughts
That’s it! Not too bad huh? With the information given to you above, you now have a clear path to achieving financial freedom. By no means will this journey be easy. However; if you take the time to get clear on your goals and do the work, there is no doubt that you will achieve financial freedom. Get ready to turn your financial dream into your financial reality. You will thank yourself later! I hope that this helps!
