My goal is to help you take control of your money, so you can pay off debt and work toward true financial freedom.
But what is true financial freedom?
Financial freedom can be somewhat of an elusive idea. Let’s define it so we know where we’re headed.
When my husband Mike and I decided that we needed to be more intentional with our spending, I dove in to learn as much as I could about personal finance.
I realized that there are actually three stages to financial freedom.
The three stages are financial security, financial independence, and financial freedom.
Economic security is defined as “the condition of having stable income or other resources to support a standard of living now and in the foreseeable future.”
What does this mean?
This means that one feels reasonably secure that his or her current income stream(s) will continue so that they can maintain their current lifestyle.
When I was growing up, I was the only child of a single mom. Money was tight, and we lived paycheck to paycheck. My mom worked two jobs for most of my childhood, and as the end of each month neared, we would frequently have to put off grocery shopping. When the last day of the month rolled around, we would go shopping in the evening so that my mother could write a check knowing that it would not be cashed until after her paycheck had hit her account the following day.
I always knew that money was a stressful subject for my mom. She never wanted to disappoint me, and she always wanted to provide the best for me. Because I was a good student in school, we had high hopes that I would one day break free from the weight of living paycheck to paycheck.
As I transitioned to adulthood, I longed for the day when I would feel financially secure.
From 2006 to 2008, I paid off the credit card debt that I had accumulated from college through my mid-twenties. Slowly but surely, I began to feel more secure in my financial situation. I was earning enough money in my job to cover my expenses and save up for our wedding in 2009, but I knew I still wanted more.
What I wanted was financial independence.
According to Wikipedia, “financial independence is generally used to describe the state of having sufficient personal wealth to live, without having to work actively for basic necessities. Financially independent people have assets that generate income that is greater than their expenses.”
Financial independence takes it up a few notches from financial security.
My interpretation is that someone who is financially independent has enough income-producing assets such that they could quit working for a prolonged period of time and still be able to maintain their standard of living.
Therefore, to achieve financial independence, one must have several pieces of their financial puzzle in place.
Financially independent people have the following:
- a fully-funded emergency fund,
- little or zero debt, and
- income-producing assets, such as stake in a business or investments in real estate and/or stocks.
Currently, my husband Mike and I are working toward financial independence, but ultimately we aspire to become financially free.
Financial freedom signifies that one has accumulated enough wealth or income-producing assets (likely, a combination of both) such that they never need to work again.
(It is important to note that while financially free people do not need to work to survive, many will continue to do so because they have found work they love.)
Financial freedom builds on the three aspects of financial independence listed above and takes them a step further.
Here are the three pillars of financial freedom:
- Financially free people maintain their fully-funded emergency fund.
- Financially free people have no debt. Why would they need debt when they are building wealth? Debt is just a weight on their bottom line.
- You have probably heard of the benefits of diversifying your investments. Well, wealthy people diversify their income streams. Income streams may include a day job, owning and running businesses, and having multiple investments including real estate and stocks.
According to the authors of The Millionaire Next Door (really great book, read it if you get a chance), financial freedom is something you need to work hard on.
“If your goal is to become financially secure, you’ll likely attain it…. But if your motive is to make money to spend money on the good life,… you’re never gonna make it.”
― Thomas J. Stanley
My husband and I are working toward true financial freedom so that we can live the life we have always dreamed about. We are not concerned with acquiring a lot of material possessions, but we long for the day when we can travel the world and give generously to others in need.
If my husband were to lose his job for whatever reason right now, we would be scrambling to figure out how we would make our mortgage payment for the next few months. Thinking about that possibility is extremely stressful.
For that reason, the only logical and responsible path for our financial future is to pay off our non-mortgage debt as quickly as possible so that we can increase our emergency fund and then focus on paying off our mortgage early. Once our mortgage and other debt are paid off, imagine how quickly we’ll be able to save and invest.
We are no longer settling for the status quo of living paycheck to paycheck with unneeded stress. We are taking responsibility for our financial situation.
We are looking forward to the day when we no longer have any debt payments, we are sitting on a fully funded emergency fund, and we are able to maximize our retirement savings. That is when we’ll be on our way to true financial freedom.