It’s interesting how elusive something can be if you don’t have a good definition for it. For instance, lots of people want financial freedom, but what exactly is it? Some see it as a vague goal or distant dream. Others think financial freedom is only for an elite few. Financial freedom is a great concept, but can you define it and determine where you stand with respect to being financially free?
How Most People Think About Financial Freedom
Before I give you my take on this, let’s explore what most people think:
- Financial freedom is being out of debt: Often people make financial freedom synonymous with freedom from the shackles of debt. I agree this is important, because until you dig yourself out, you’re certainly not free. Consumer debt—that relentless revolving credit—is extremely restrictive. It seems more painful than a secured debt like a mortgage, but today secured debt can be insecure. Recently we’ve seen how a mortgage can impinge on freedom. A house that’s under water isn’t truly a secured debt anymore!
- Financial freedom is having just enough to meet my needs and fund my retirement: Some think a person is financially free if there’s enough money coming in from passive sources, now or in the future. The word “passive” in this case refers to income for which there’s no need to work. Investments, social security and pensions are some examples. By being careful, a person in this category can afford a traditional retirement at around age 65.
- Financial freedom is having enough for my needs, most of my wants and a very comfortable retirement: Some people think financial freedom belongs to the independently wealthy, those who can do whatever they want without spending time working. These individuals might have had a windfall and used it wisely. It could also be that their careers, investments and money management techniques made them very prosperous. The end result is an extremely comfortable retirement and many wants being met over the years.
- Financial freedom is being able to purchase anything and everything I want: Certain people think financial freedom applies only to the small category of extremely rich people like Warren Buffett and Bill Gates. There is nothing purchasable they cannot buy.
Financial Freedom as a Continuum
Those are reasonable ways to describe financial freedom. However, here’s why I think they miss the mark: They’re all-or-nothing definitions where you’re either free or you’re not. Financial freedom isn’t about whether or not you’re free. It’s about degrees of freedom.
At Money Mentals we don’t say, “At this point, you’re financially free.” Instead, we talk about incremental freedom. We call it Months of Freedom, which how many months you can go without having to earn an income.
Freedom to Celebrate
My blog Seeking Financial Freedom, not Just Retirement talks about how retirement is being redefined today. We need to redefine financial freedom as well, because the all-or-nothing approach is inaccurate and too restrictive. It can even be a real downer! Many people can’t feel like they’re free until they’ve achieved tremendous riches—so why start? For some, just digging out of debt is a long road.
If you think of freedom as incremental, buying another unit of freedom is within reach. Tracking your Months of Freedom gives you a lot of freedom in itself, because each little bit saved brings you closer to another month gained. Your time takes on a whole new meaning. The discipline and sacrifice involved in work become more worthwhile.
Financial freedom doesn’t have to come all at once at the end of your life. For example, someone with a small amount of freedom might choose to take a sabbatical or work part time.
Most of us never get to the Warren Buffett and Bill Gates version of financial freedom. Many may never even get to the comfortably retired version. That doesn’t mean we have no freedom at all! Let’s reframe our thinking so we can celebrate our progress and keep on becoming increasingly financially free.