So often we are quick to put a value on what financial freedom means to us. Many people say "I want to be a millionaire - so I need one million dollars in the bank". Or, "If I made 0,000 a year, I would be financial free." So take a moment and think: what is my personal financial freedom figure?
Wikipedia defines Financial Independence as "a term generally used to describe the state of having sufficient personal wealth to live indefinitely without having to work actively for basic necessities." (Note that Wiki doesn't define Financial Freedom - it takes you to its Wealth definition.). Have you ever actually sat down and really figured out how much wealth you would need to reach financial freedom? Does it mean a certain amount in the bank? Does it require a certain income per month? Well, the answer varies for everybody, and will certainly depend on your stage of life. Read on for some things to ponder when trying to come up with your Financial Freedom Figure.
Let's look back at two parts of the definition: having sufficient personal wealth to live indefinitely without having to work actively.
By the time you are 65, you could possibly be earning enough government pensions to not actively work until your last days on earth. Even in your twenties, you could be become disabled, and government assistance and disability insurance could cover your basic necessities for life. So, seniors and people on disability support technically are financially free. Their financial freedom number is based on a certain amount of money per month in government and disability pensions. But realistically, we know that anyone on a government pension or disability would hardly jump up and down and say "I'm free, I'm independently wealthy, and I'm rich!" These people may have their month expenses paid for, but unless they have some cash reserves as well, they are limited to spending only what their pensions bring in. For a person in their 80's, this may be just fine - their expenses are low, they aren't providing for a family anymore, and may not even have a spouse to care for. But then again, they may have huge medical expenses and care-home expenses. So unless the senior has a good net worth, he may not be financially free.
The twenty-something who's on disability will probably have a tougher time saying he's financially free. He may be single now, but when a spouse and children come his way, so does the mortgage payments and credit card bills. And the thought of living the next 50 years on a set, minimal income is not all that appealing. Again, he will be forced to spend only what his disability pension brings in. But, technically, he has reached financial independence.
Is this what you thought financial freedom would look like? Well, for some people it might; as long as all your basic needs - food, water, shelter - are met, shouldn't you be happy? Or are you on the other end of the spectrum, thinking of boats, cars, vacations, and fancy clothes when you dream of financial freedom?
For those who are leaning towards the "fancy" side of financial freedom, I ask you this: Can you not have those nice things while you work? Of course you can. Do you feel rich when you accumulate those things? Probably, but it depends on if you used debt to acquire them, or you paid for your luxuries with cash. You may feel rich by paying cash, but if you still need to work the next year to save up enough to buy another luxury, are you really free? And if you used credit to purchase your items, then you may feel rich while using the item, but not so rich when you sit down to pay your credit card balances.
Being financially independent is more of a lifestyle quality than it is a quantity. You need to figure out what quality of life you wish to attain first, and then you can go about calculating a figure to support your chosen lifestyle. And your lifestyle quality will change through-out your life. You may consider yourself financially free during your child-raising years if you've managed to either save enough in cash or earn enough in passive income every year so that you do not have to go to a job every day during your children's first five years of life. Or maybe your freedom comes from having the wealth accumulated so that in your 40s you can take 5 years off to return to school and get a university degree. Maybe financial freedom is as simple as renting out your residence for 00 per month for a year, and moving to a foreign country to live on less than the 00 per month your passive income rental generates.
Did you think of any of these scenarios when you first thought of financial freedom? Many people do not - they only think of retirement at age 65, or winning the lottery. Most people expect that they will always work until retirement, and few people think of generating passive income outside of their jobs.
Why can't we do both? And why can't we be financially free for only a year, five years, or even six months? We can, but we are programmed to think "forever" and "never work again". I would sure be happy and feel wealthy and free if I were to say "Yes, I stayed at home with the kids while they grew up, because I was financially free" or "I spent a year in Costa Rica learning Spanish, because I was financially free for the year". So I go back to work after those events in my life - big deal. At least I could say I reached financial independence before my meager government retirement pension kicks in, and my hips or heart gives out. And you can bet your savings account that after being "free" for any length of time, your appetite to generate more passive income will be ferocious: more passive income means more freedom.
So, what is your Financial Freedom Figure? Don't start with the numbers, but with your heart. What lifestyle do you really want to live?
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