While it may well be true that money can not and does not buy happiness, there is overwhelming evidence that its absence is one of the major drivers of unhappiness. Furthermore, I think it’s fair to say that few would argue that money can buy choice, time and ultimately freedom – which can then be used in the pursuit of happiness.
In order to pursue our own personal freedom, we first need to secure our financial freedom. But what precisely does financial freedom actually mean? Well contrary to popular insta-stereotypes, it does not necessarily mean opulent yachts and beach club cocktails. In fact, being financially free is not the same as being rich at all and is not even bound to entrepreneurial success. All that financial freedom truly means is having enough diversity of income so as not to be too dependent on any one and especially not to be solely dependent on a job or career. It means being independent means that you are not chasing payday, slaving for a wage and can in fact live life on something nearing your own terms.
It is a humble and very achievable dream and in this post, we will show you how to make this dream into a reality.
What Is Financial Freedom: More Than Just a Dream
As we indicated above, the financial freedom definition is simply the state of having enough personal wealth to live without having to actively work for basic necessities. It’s transcending the rat race and waving goodbye to the 9 – 5 grind, safe in the knowledge that you will never again have to work a job you hate purely in order to pay rent or put food in the fridge.
Contrary to what ideas you may have, financial freedom is not an exclusive club reserved for a fortunate few but is actually a realistic and very achievable goal, given the right mindset, some discipline, and a sound financial strategy.
Note that most people who achieve financial freedom don’t necessarily have enough money to eat out every night or travel the world endlessly. Rather they simply have their housing needs sorted and a basic income. Most financially free folk then choose to work at projects or jobs they enjoy in order to either pursue their own interests, or simply to or make extra spending money.
Setting the Stage: The Power of SMART Goals
So the question now is How to reach financial freedom. Well the journey towards financial freedom begins with some SMARTl (Specific, Measurable, Achievable, Relevant, and Time-bound) goal setting.
Your personal financial SMART goals could range from seeking a second monthly income to the value of $X, paying off your mortgage within a specific timeframe, or simply building an early retirement nest egg (or you could aspire to all 3 of these for the ultimate financial freedom!).
Whatever your goals are, the key is to make them SMART, clear and actionable and you also need to be ready to hold yourself accountable.
Tracking Your Progress: The Roadmap to Success
Success is not a destination but is in fact a journey in itself. What this means in practice is setting down trackable SMART goals and holding yourself accountable when it comes to achieving them.
For example you could set a goal to pay down your mortgage by $x within the next 12 months. If you then fail to meet this goal, be ready to analyse why. Did interest rates rise or were you simply spending too much on cheese and wine each month?!
The Art of Saving: Building Your Wealth Foundation
Saving money in the here and now is fundamental in achieving long term financial freedom. Put simply, saving is the first, and arguably the most crucial, step towards financial freedom.
The principle here is quite straightforward – spend less than you earn and ‘save’ the difference. If you are not currently able to do this then you will not achieve financial freedom until you correct the situation. That may mean working more hours, moving to a cheaper house or even sacrificing all luxuries and leisure for a while.
Setting a monthly budget and tracking all expenditure is a good habit to master here. However ultimately “saving” money is only the start as we shall demonstrate.
Breaking the Chains: The Importance of Debt Reduction
Reducing debt is as important, and in some cases more important, than saving money. Ultimately you should aim to be debt free as soon as reasonably possible as every penny you pay to a creditor (which by the way will include a hefty interest premium) is a penny you are not investing.
Many financial advisors would even counsel paying off all debts before you begin saving; you cannot meaningfully enjoy net worth growth if you are in debt. That said, there is a distinction between good and bad debt here. An example of a good debt is a mortgage as this will leave you with a valuable asset at the end whereas an example of a bad debt is a credit card balance – high interest payments on consumer purchases.
Investing Your Way to Freedom: Index and Dividend Growth Investing
Unlike us, money does not benefit from sleep. In fact, in so many ways dormant money is in fact dying money as real inflation does have a nasty and persistent tendency to rival even the best bank savings account interest rates on the market.
Million Dollar Journey says that financial freedom will only come when the money you have works for you. If you are to ever achieve and obtain your own personal financial freedom and this means investing, the best tried and tested form of Wealth Building.
The concept of investing can sound and seem downright daunting to the uninitiated but it does not need to be. Investment Strategies such as an index fund like the S&P 500 tracker are perfect for risk averse, long term beginner investors. Typical yields are currently around 7% (despite some current turmoils) and re-investing these dividends into the fund means that within 15 years, the value held will have doubled. That is incredibly powerful when it comes to the goal of achieving financial freedom.
Supercharging Your Journey: The Power of Additional Income
Building a second income stream can be a major factor in accelerating your journey towards financial freedom. Firstly, it represents diversification so that you are no longer dependent on a single income stream (such as a day job).
Furthermore, this additional income can then be used to reduce debt, invest, learn new skills or even buy property all of which will offer exponential gains later on.
Of course, building a second income stream can prove challenging and stressful especially for those who already feel “maxed” out from working as it is. That is why choosing the right additional income stream is vital – look for something that you actually enjoy, and that offers flexible working conditions so that you can take time out if you need to.
Success Stories: Proof That Financial Freedom is Possible
We said right at the outset that financial freedom is not a pipe dream and is in fact very possible for almost anybody. You don’t simply have to take our word for it though – take a look at these real life success stories of ordinary [people who achieved financial freedom.
Grant Sabatier, the author of “Financial Freedom: A Proven Path to All the Money You Will Ever Need.” went from having $2.26 in his bank account to becoming a millionaire in 5 years, by the age of 30. He achieved this by diversifying his income streams; working a day job, starting a digital marketing agency, flipping houses, and building websites. He now writes regularly for a number of major websites offering his expert insights into making money.
Mr. Money Mustache is a pseudonym for Peter Adeney. Peter retired at the age of 30 through frugality and smart investments in low-cost index funds and rental property income.
Conclusion: Your Path to Financial Freedom
As we have demonstrated, financial freedom does not mean swimming pools filled with champagne and is not some unattainable, remote goal. Instead, simple financial independence can be achieved by careful accumulation of savings and assets and by steady investments such as Index Investing.
If financial freedom is your goal, then start today by setting yourself some SMART goals and finding ways to reduce your debt. Over time you can look into ways to turn your savings into investments and then find an additional source of income.