What is financial freedom, what it takes to achieve it and what it’ll mean for you
If you’ve been trying to figure out what financial freedom is for a while now, you’ve probably read that financial freedom means different things for different people, and that you should find out what financial freedom means to you.
While that is most certainly true, I’m a person of science and numbers, and I do like to get straight answers rather than broad definitions whenever possible. And in this case I do believe we can find a single definition for financial freedom that will cover all, regardless of your status, income or life expectations.
In simple words that anyone can understand, financial freedom is not needing to work for money. It’s that simple.
Financial freedom is not (always) about money
Most people associate financial freedom with being rich, with having millions in the bank. Financial freedom certainly has to do with money, but not necesarily with unreachable amounts of it. Here is were asking “what financial freedom means to you” comes in.
Remember the definition. Financial freedom is not needing to work for money. Now if you like to drive jaguars, eat caviar for breakfast and maintain a holyday house in the beach, your overhead is going to be considerable, and if you need to do be able to do all that in order to achieve financial freedom you sure are going to need to have a lot of money. If that’s your case, then yes, financial freedom to you means being rich.
But that’s not the case for everyone.
Many people wish they could wake up every morning to the singing of birds and spend all day writing novels with a nice cup of tea, while others wish they could spend their days surfing and chasing the perfect wave.
If you fit under the second category, or any variation of it, financial freedom will not necessarily mean a bank account with many zeros. In those cases financial freedom is not onlyreasoably achievable, but probably within reach in just a few years with some careful planning.
Calculate how long it will take to achieve financial freedom
Once you’ve decided what you would want to do with your time if you didn’t have to work for money it’s time to see how long it’s going to take you to get there.
- First you need to calculate what’s the monthly cost of living your dream life.
- Once you have that number you need to think of an investment that could generate that much money every month for you with very little effort. In other words, you need to find a source of passive income that will cover your monthly expenses while you do whatever it is that you want to do.
- The third and last step is to figure out how mucho money it’ll cost to build that source of passive income and how fast you can get that money bases on your income history.
Plan to financial freedom example
Imagine you do want to live in the nature and spend your time writing, hiking and growing your orchard. Your monthly expenses could look something like this (depending on were you decide to settle of course):
| Food | $400 |
| Services (electricity, water, internet) | $300 |
| Gas and car maintenance | $300 |
| Property taxes | $200 |
| Wants (new cloth, dinner out, etc.) | $500 |
| Travel (visiting family, etc. average per month for a yearly trip) | $250 |
| Total | $1,950 |
In this scenario you’ll need to generate $1,950 per month in passive income in order to achieve financial freedom.
Now let’s say you decide you want to generate that income from real estate. Renting property you own should earn you ~6% just from rent, without considering property appreciation. So in order to make $1,950 per month you’ll need to buy a property worth ~$390,000. If this is your goal, meaning you are willing to sacrifice a bit to get there, you could reasonably make that purchase, in cash, debt free, in under 10 years on a $60K per year salary if you saved 50% of you salary and invested that money in funds or other low risk investment options.
Through in a few more years of work in order to buy a second property, the one were you’ll actually live, and 13-15 years from now you could be free to do what you really want to do, indefinitely, through the rest of your adulthood and retirement. Plus your two properties will keep appreciating over time in case you ever decide you want to sell them a do something else.
This is just an example to show how you may estimate how far away from financial freedom you are. Of course this scenario can change drastically based on you expectations, current income and raise expectations, risk tolerance when it comes to investing your savings, etc.
Financial freedom will untap a whole new you
We spend most of our day, most of our week, most our adulthood, working to make money in order to pay for all the things we want. We work in positions which might be more or less fulfilling at companies which might have a more or less human mission. We do the best we can to make the world a better place, but always knowing we need to earn money to make ends meet.
Once you achieve financial freedom you don’t have to work for money anymore, so if you decide to keep working you can choose what you want to work on regardless of the pay. Once you achieve financial freedom you’ll be in a position to start asking yourself new questions, what kind of person do you want to be? How can you help solve the problems that matter to you?
If you like psychology, achieving financial freedom will liberate you to climb Maslow’s pyramid to the level of self-actualization and reach your full potential.