For a phrase that gets tossed around like a football, there’s still a lot of misunderstanding around the meaning of “financial freedom” and many of its cousin money management buzzwords, like:
- Financial independence
- Financial peace
- Financial security
- Financial super-yummy happy good times
It’s possible that I made up the last one, but you can’t prove that, so let’s just move on. Phrases like these are all up in our faces lately. Podcasters, financial advisors, hotshot experts, and salespeople of all sorts use them constantly.
Yet there is still a huge gap of understanding around financial freedom. What is it, can a regular person achieve it? If so, how so? And what is the difference between financial freedom and these other terms, if anything at all?
Well, today we’re going to close the gap. We’re going to explore what financial freedom is (and what it’s not), plus how you can reach it. If you’re ready to stop struggling financially and take control of your life and money, read on.
What Does Financial Freedom Actually Mean?
So with all these enticing-if-vague money phrases flying around, how do you know if financial freedom is even what you want?
While the debate rages on (and perhaps always will) about whether or not money can buy happiness, there is one point that has yet to be disputed by anyone: there is pain and difficulty beyond measure that money can protect one from. Whatever about happiness, there’s a great deal of unhappiness that can come from not having the money you need, when you need it. For instance, if you’re like the rest of us, you’ve probably at least once in your life had to go through one of the following:
- Forgo care that would improve your health and happiness, because of the cost
- Hold onto a job that you hate because you needed the paycheck
- Restrain your generosity due to financial anxiety
- Choose between which necessities to cover and which ones to delay or skip
- Borrow money, and indebt yourself to others, in order to cover basic expenses
Together with my wife, I have built (and now live) a life where none of these things has a place any longer. We have put ourselves in a situation where a lack of money does not dictate our choices, nor does it force us into these unpleasant (or even dangerous) circumstances. That is what financial freedom is.
I did it, and you can, too. The process wasn’t quick or easy, but it was simple and reliable. It doesn’t take millions of dollars, or any sort of magical advantage, or even special skill to achieve. Anyone can pull this off, and I will show you how.
Financial Freedom vs. Financial Independence
For just a moment, let’s look back at those other fun phrases I mentioned at the top. There’s really just one that I’d like to call out in particular: financial independence.
Financial independence, in the context of the FIRE (Financial Independence/Retire Early) movement, is a separate but related goal to what we’re discussing here (financial freedom).
All those other phrases (freedom included) refer to the same basic concept I described above. And honestly, it doesn’t really matter that much what you call it. A life that’s not dominated by constant money anxiety is what we’re after here, by any name. You can call it whatever you want. To me, financial freedom is simply the name that makes the most sense.
Financial independence, specifically, is an advanced version of this idea. Where financial freedom is about accumulating the resources to be able to call the shots in your own life, financial independence takes it a step further. The idea behind FIRE is to build up a big enough platform with your own savings and investments that you can live off your money indefinitely. In other words, it is about becoming completely independent with your own money; not needing to rely on any outside source of financial support, including a paying job.
In this sense, you can think of financial freedom as a foundation. If financial independence is your long term goal, this is the place to start. Likewise for any other major long-term money goal. Whether you want to simply live in peace, define your career based on what you love rather than what pays best, build up a fortune and buy the universe, or just have a good time without feeling worried about money all the time, financial freedom is the place to start.
How to Achieve Financial Freedom (in 3 Simple Steps)
Alright, you get the idea. Now it’s time to get practical. Let’s dive into the tangible steps you can take to actually reach financial freedom. It turns out to be way simpler than you might think.
Everything (and I mean everything) you need to know about achieving financial freedom and living an abundant life with money falls into three very simple steps:
- Bring it in (earn)
- Hold onto it (save)
- Put it to work (invest)
You may think that I’m over-simplifying here. But this really is all you need. The keys to financial freedom are these basic, age-old steps, consistently and intentionally applied. There is no complex system here, no insider secret that “cracks the code” to building wealth. It’s simple stuff, but hard to do.
Most people never achieve a thriving life with money. That’s not because they don’t intuitively understand what to do or can’t learn. It’s just hard to do because it takes conscious planning, focus, and good habits – a price that most aren’t willing to pay.
We can make the steps a bit easier with a little diligence and the right approach.
But there are no shortcuts, and no way around doing the hard work. Of course, people will try to sell you shortcuts and ways around doing the hard work, but that doesn’t mean they exist.
If you’re ready to do this thing the old fashioned way — the ONLY way that has always worked — through good habits, sticking to a plan, and listening to your own common sense, then you can succeed here. You WILL achieve financial freedom, and here’s how.
Step 1: Bring It In (Earn)
Step 1 is, in a word, income. That includes your primary job income, yes. But it’s also about creating multiple streams of income for yourself through side hustles and passive income sources.
Building up the number and magnitude of your streams of income is the first step to a thriving financial ecosystem. It is the main determinant of how much you’re able to work with in the later steps.
I likely don’t need to spend any time convincing you that increasing your income is a good thing. But I will say that approaching this step consciously, particularly in the context of a larger financial plan, tends to accelerate your income growth like you wouldn’t believe. Relying solely on one salary and waiting for your accomplishments to be remunerated won’t get you far. Increasing the value that you offer, and making sure you’re paid fairly for it, will.
Before you move on, one more note: One of the biggest mistakes you can make in pursuing financial freedom, is believing that a high income is all you need. Income is the gasoline that fuels your financial system (at least initially). But without a working engine to go into, gasoline is just smelly dinosaur juice.
Tips for Developing Your Income
- Don’t wait for a raise or promotion – know your worth and learn how to ask for it
- Always be learning – practice new skills, acquire domain knowledge, whatever it takes to raise your value in the marketplace
- Start a side hustle – find a way to monetize a hobby/passion/skill you already have
- Pick up part time work that doesn’t take too much out of you – gig work (Lyft, Postmates, Instacart, etc.) is great for this!
- Create “passive” income streams, (e.g. selling prints or digital products) or through investing (See step #3 below)
Step 2: Hold Onto It (Save)
Your monthly savings rate (the % of your income that you manage to keep each month) is the single most important factor in your financial success. Let me say that again, to be absolutely clear:
Nothing matters more in achieving financial freedom than the amount you manage to save.
Why? Well, there’s a couple of reasons. For one thing, neither of the other two steps is worth much without consistent saving in the middle:
If you make a massive income (Step 1) and skip Step 2, then you will have $0. If you skip Step 2 and then try to invest your (non-existent) capital for Step 3, you will still have $0. No amount of income or level of investing skill will fix this problem.
Contrariwise, an excellent saver will always have something left at the end of the day, even with a low income and poor investing.
The other reason that saving is the most important piece of the wealth-building puzzle is that it is the lowest-hanging fruit in the whole equation. Increasing your income or investment returns takes considerable research, time, and effort. Doubling either of these would be a HUGE win, but is not likely to happen quickly or easily. On the other hand, if you currently save 5% of your take-home pay, then you can double, triple, even quintuple that number with only a little more attention to your monthly spending. And that’s just the start. There are millions of serious savers the world over who regularly save upwards of 50% of their paycheck.
Saving is not only the easiest place for most people to improve, it is also the biggest multiplier of your success with the other two steps.
Tips for Improving Your Savings Rate
- Start tracking a budget and find out where your biggest money leaks are
- Reduce debt as aggressively as you can, and avoid new debt like the plague
- Explore minimalism, frugal living, and other “less is more” philosophies
- Identify your most important values and work to align your spending with those values
- Remove the word “sacrifice” from your vocabulary and learn to love the thrill of keeping more of your hard-earned dollars for you and your future
Step 3: Put It To Work (Invest)
Okay, so you’re working to raise your top-line income, and you’re building better saving habits to hold onto a larger chunk of what you bring in. Is that it, are we all rich yet?
Not quite, but we are well on the way. And let me say, if you made it this far, you’re already way ahead of most on the road to financial freedom.
And it only gets better from here.
This is where things get fun. Here’s where we put our money to work, and it starts to make money for us. For most people this step will feel the most intimidating, the most complex, and the most foreign. But I assure you, there’s way less to it than it seems.
Don’t get me wrong, there is an absolute overload of investing options and information out there. But most of this is just noise. Keep in mind, there is a massive industry built on convincing you where to put your money, and taking a nice bite out of it for the privilege. Most of this information overload is of no use to most of us, and is as likely to put your money in jeopardy as it is to make you wealthy.
Good investing for real people (like you and me) is simple, patient, reliable, and always pays off massively over the long term. I’ll go into more detail on building a simple investment strategy that works for you in a future post. But for now, let’s start with some fundamental mindset tips for anyone investing to reach financial freedom.
Tips for Growing Your Wealth Through Investing
- Do your research. Figure out a basic portfolio that makes sense for your unique situation
- Keep it simple. Don’t put your money into anything you don’t understand; this is one great way people lose money
- Be patient. Play for the long run, don’t waste your time looking for quick wins
- Don’t let emotions take the wheel, and never make reactive choices based on mass hype or panic. If your strategy hasn’t changed, your portfolio shouldn’t either
- Know who you’re listening to. Assess any source of financial advice (including me!) and understand their motive BEFORE taking their advice
- Don’t put all your eggs in one basket. A strong investment portfolio, just like a strong income, is diverse, not all hinged on one point
And there you have it. The only 3 steps that have ever been needed to achieve a life of financial freedom. Earn it, save it, put it to work. Succeeding with money is nothing more, and nothing less than these three steps. There are still specifics to fill in, but don’t let them weigh you down too much. You know what to do, it’s just going to take time and effort. But you can do this. With a bit of patience and perseverance, you will get there.
A Final Note
One last tip: Achieving financial freedom is just as much (if not more) about what you’re not doing, buying, and thinking as it is about what you are doing, buying, and thinking.
Money can be intimidating and overwhelming to everyone at times — particularly when trying to make large, long-term shifts to your financial habits. But staying true to Smarter and Harder form, I encourage you to always start with Less. Look for what is there that doesn’t need to be, what is taking up space or holding you back that needn’t, and think about what to subtract. Make the space you need to succeed, and then decide what makes the most sense to add in.
The world of money is a noisy, messy space. Sift through the noise for the simple, universal rules that have always held true, and clutch onto those as your guiding compass. In no time at all, you will find yourself steadily cruising toward a relationship with money that is simpler, more peaceful, more abundant than ever, and deeply, fundamentally freeing. If you’re ready to commit to something that is simple but sometimes hard to do, then you have everything it takes to achieve lifelong financial freedom that no one can take away from you.