Is financial freedom achievable?
In recent times, financial freedom has become a hot topic. I have worked with countless investors who tell me their goal is to be financially free but don’t know where to start. So, is financial freedom achievable and how can you get there?
To many people, financial freedom conjures up an image of living in opulent luxury. A millionaire lifestyle of mansions, sports cars, yachts, and private jets. It seems so far out of reach and unachievable that most people never really try to achieve it. Unless your lucky numbers come up on the lottery, you won’t suddenly become a millionaire overnight. It’s a long gradual process with lots of steps along the way, so most give up on the dream before ever getting started.
However, financial freedom means different things to different people and chances are you don’t need millions in the bank to achieve it. That’s why the first step is to define what financial freedom means to you, as it may be more achievable than you think.
What is financial freedom?
Everyone will have their own personal goals, different ambitions, and their version of what they want to achieve. So, everyone will have slightly differing financial requirements. However, these are broadly the three most common stages of financial freedom that most people will aspire to.
Financial security is when you have enough passive income from your investments to cover all your essential living costs. This would generally include your mortgage, bills, food, and anything necessary to live a basic lifestyle each month. If you were to lose your job but could still afford to pay the bills, keep the roof over your head, and food on the table, you would be considered financially secure.
The likelihood is that your basic living costs are quite a bit less than your normal income. Most of us will have non-essentials that we pay for each month too, like holidays or eating out. Things we could cut back on if we were to lose our job. Also, if we weren’t going out to work then some other costs would reduce, like commuting, takeaway coffees, and lunches out.
This all means that basic financial security is a version of financial freedom that is much more attainable. Simply list all your essential living costs each month to work out how much you need for financial security. It’s likely that it’s not as scary a number as you think.
While financial security can feel liberating and provide peace of mind, nobody wants to be living a basic frugal lifestyle forever. If you were to lose your job, even if you were financially secure you would need to find another eventually.
Financial independence is the next level of freedom where you have passive income to replace your income from employment and replicate your current lifestyle. It’s the stage where you have the option to leave work and have enough passive income to maintain your normal lifestyle.
This is essentially the point that most people are trying to get to for retirement, or early retirement. So, it’s important to plan a timeline and know when you are looking to retire. With the benefit of time, every goal becomes more achievable. If you wanted to leave work today, then you would likely need to replace your full salary to maintain your lifestyle. However, if you are planning for a future retirement your costs could be much less, so the income you need will be less too.
Once you reach traditional retirement age you will receive a state pension. If you have a private pension, 10 years before that you may have access to a lump sum. It’s also likely that when planning retirement, you will have paid off your home mortgage by that stage too. For most people, their mortgage is their largest monthly expense. With that gone, you need much less to live the same lifestyle, so this stage could also be within reach for most people.
The ultimate level of financial freedom is your dream lifestyle. This is the truly aspirational level where you have enough money to do anything that you want to do. This is the level that will seem completely out of reach to most people. But not necessarily.
It’s hard to argue that travelling the world, flying first class, and staying in luxury hotels is going to be expensive. A new sports car each year doesn’t come cheap either. But for many people what matters most is spending quality time with friends and family. Having time to indulge in their hobbies and interests.
It completely depends on your values and what you consider to be truly important in life.
I would encourage you to think about how you would spend your time if money was no object. Plan out your typical day, ideal week, perfect month. How would you spend the next year? In almost every case when I’ve done this exercise with clients, although the numbers can be big, they are usually still achievable given time and a plan.
It’s not all about the money
Those are the three main levels of financial freedom, but money is not the end goal. Before we ask is financial freedom achievable, we need to know why we want to achieve it in the first place. Financial freedom is about being able to choose how and where you spend your time. We strive for financial freedom to give us other more valuable freedoms.
Financial independence and time freedom go hand in hand. There’s no point having millions in the bank if you’re always working too hard to enjoy it. Financial freedom is about getting to a stage where you can enjoy your time as you choose.
Many people don’t want to stop work altogether. It gives us a sense of identity, purpose, and achievement. It provides a routine, keeps us active, and provides social opportunities. However, most people want more flexibility and work/life balance. Maybe it’s working less hours to spend more time with family or leaving employment to work on a passion project. Having the choice and not being restricted by money is time freedom.
Being financially independent allows you to choose how you spend your time and the work you do. Rather than working a job you hate out of necessity, you can find a job you enjoy, that you are passionate about, and with colleagues you enjoy spending time with.
Financial independence and location freedom also go hand in hand. Most people are tied to a certain location because it’s close to where they work. Unless your job is 100% remote, there will be a commute to consider, and often a compromise on location.
Some people will relocate away from their family and friends to be closer to a new job. Or maybe they commute longer distances to work to avoid moving away, but this impacts their time. There is also a great disparity between property prices and cost of living in the South versus the North. Therefore, you may find it hard to live in certain locations due to the cost.
Being financially independent allows you the freedom to live wherever best suits your lifestyle without these compromises.
So, is financial freedom really achievable?
Hopefully by this stage you will realise that financial freedom comes in different forms. There’s a process to first build security, then greater independence, and ultimately freedom. Then there are the other freedoms that it leads to – time and location freedom.
It all starts by setting your goals, knowing what you want to achieve, and being clear on what financial freedom means to you.
Hopefully by looking at the different stages and working out your own numbers, you’ll see that it’s not as scary or unachievable as you might think. In our next article I will explain how to start on your own journey to financial freedom and the steps you should take to achieve success.
If you would like to chat with me about your own situation and how financial freedom can be achievable for you, simply register below and I’ll be in touch soon.
At Fintentional we work with our clients to understand what is most important to them so they can set powerful and meaningful goals. We then put together a clear plan of how to achieve your goals that should leave you excited by what can be achieved. Our speciality is property investment, and we support our clients to build portfolios tailored to achieving your biggest individual lifestyle goals. Along your journey we provide practical support, including coaching and deal sourcing, as well as accountability to keep you on track.
Let 2022 be the year that you take intentional steps towards achieving your financial goals!