Financial freedom is place in your personal finance where you have the choice to do whatever you want. Most people are not financially free and have to do what other people want.
Some examples of people of who have achieved financial freedom:
- They don’t need to work, but they can if they choose to. They enjoy working because it keeps them thinking, active, or challenged.
- They earn significantly less then their potential. They may prefer to earn less to have more free time or do only what they love.
- They have sufficient savings to last forever. The FIRE movement suggests that you could potentially withdraw 4% of your portfolio forever.
- They are not stressed about losing their job. If they do they aren’t worried about finding a new one right away. In fact, many of them are trying to get laid off to collect their severance and refocus their energy into entrepreneurship.
- They don’t expect raises at work, but enjoy the acknowledgement. They are already at the highest pay grade and working on their own terms, so getting paid more may not be possible. However, they like know they make a difference in the business’ success.
These are all places of financial strength.
One goal of this website is to get you from a position of being financially weak to financially strong. AND EVENTUALLY FINANCIALLY FREE!
Lets go over some broad highlights of what is weak verses strong from a personal finance standpoint.
– Living paycheck to paycheck
– Spending on things that you can’t afford
– Not tracking your income, expenses, and net worth
– Saving very little, if anything
– Not earning up to your potential
– Desiring rewards without the effort
– Saving a significant percentage of your income and gradually increasing it as you earn more
– Being frugal with your spending
– Carefully calculating the cost vs. benefit of all purchases
– Tracking your income, expenses, and net worth on a regular basis
– Seeking to improve your skills and employment to maximize earnings, without grossly sacrificing family and health
– Diversifying your income and assets so that no one thing can ruin your financial position
– Doing the hard work and being patient with the results
How do you score on the financially fit scale?
It’s not black or white, most people are not weak or strong. It’s a scale within the main categories below:
1 – Ability to Earn (skills/education)
2 – Ability to Save (control spending)
3 – Ability to Invest (yourself/assets)
4 – Ability to Track Finances (software/spreadsheets)
5 – Ability to Hustle (work ethic/motivation)
Grade yourself on a scale of 1 – 10 on each one and total them for a score between 5 – 50. Be brutally honest with yourself and lean to a lower number if you aren’t sure.
We want to take actions to get as close to a 50 as possible and more importantly, financially free.
5 Steps to Financial Freedom
1 – LEARN
Learning can be obtaining a formal degree, watching YouTube videos, or observing the manager flip burgers. Anything that can earn you income, will have to be learned. It can be years of formal education or minutes of observation.
The key here is to learn multiple skills and progressively more valuable skills.
Look at where you would like to be and what skills are valuable for those people.
2 – EARN
Once you learn you can either have job or start a business to provide your skills for money. You have to start earning with whatever someone is willing to pay you.
As you are working on mastering your level, look at people who are earning more than you in your job or business. What skills have they mastered?
Work on those.
3 – SAVE
Once you have money, you have a choice to spend it or save it. Saving is choice and learned behavior. Saving money is essential if you want to become financially free.
Many gurus talk about focusing on earning, not saving. “Saving $3 on a cup of coffee is not going to make you rich.”
That may be true for those that scored over a 40 in the scale above.
I do not think it should be ignored for those that are not frugal or disciplined spenders. Cutting small costs builds an awareness to spending.
That awareness is the foundation of saving and beginning a compounding machine.
4 – INVEST
Once you save, you can now decide how to invest that money. You can invest in yourself, a business you own, or in other assets.
Investing in acquiring skills or investing in your own business will generally provide the best returns as compared to buying passive assets like stocks.
You have a small landscaping company. You and 2 employees use 1 truck and some equipment to go around town to do landscaping work.
Once you start making money and saving, your best return on capital would be using your savings to buy another truck and more equipment.
You could then hire 2 more people, separate into 2 teams of 2. Instead of doing the work with Team 1, you now focus on getting more clients, maintaining client satisfaction and supervising the 2 teams.
5 – REPEAT
Steps 1 – 4 can be repeated until you are financially free.
Some may choose to go all in on one career/business, like the landscaper above who can grow to 10 trucks with 25 people doing landscaping, sales, accounting and etc.
Others may choose to do separate ventures like a school teacher who ventures into blogging, selling knitting on etsy, selling real estate, etc.
In summary, there are many people who have variations on how to achieve financial freedom, but in the end it boils down to Learn, Earn, Save, Invest, and Repeat.
Where do you stand and where do you want to be? A place of financial strength is something that everyone should strive for. Once you can maintain a strong position for a while, financial freedom is right around the corner.
Post comments below on where you are currently and what you’re doing to get on your path the financially free.
Also, DM me on Twitter if you want to chat!