For a phrase people toss around like a football, there’s still a lot of misunderstanding around the meaning of “financial freedom.” The same is true for many of its cousin money management buzzwords, like:
- Financial independence
- Financial peace
- Financial security
- Financial super-yummy happy good times
I may have made up the last one, but you can’t prove it, so let’s move on. Phrases like these are all up in our faces lately. Podcasters, financial advisors, hotshot experts, and salespeople use them constantly.
Yet there is still a massive gap in understanding of 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?
Today, we’re going to close the gap. We’ll 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 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 about whether money can buy happiness continues, one point remains undisputed — There is pain and difficulty beyond measure that money can mitigate or prevent. Whatever about happiness, a great deal of unhappiness can come from not having the money you need when you need it. For instance, you’ve likely had to go through at least one of the following at some point in your life:
- Forgoing care that would improve your health and happiness because of the cost
- Holding onto a job that you hated because you needed the paycheck
- Restraining your generosity due to financial anxiety
- Choosing between which necessities to cover and which ones to delay or skip
- Borrowing money and indebting yourself to others to cover basic expenses
It is possible and achievable to build a life almost entirely free of these worries and many others. 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, some magical advantage, or even special skills. Anyone can pull this off, and I will show you how.
Financial Freedom vs. Financial Independence
Let’s look back at those other fun phrases I mentioned at the top for just a moment. There’s 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 matter that much what you call it. A life free of constant money anxiety is what we’re after here, by any name. You can call it whatever you want. Financial freedom is simply the term we’re sticking with for today.
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 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.
The same is true for any other long-term money goal. So whether you want to live in simple 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 reach financial freedom. It turns out to be way more straightforward 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 essential 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 truly 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 hard to do because it takes conscious planning, focus, and good habits – a price 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 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 income streams is the first step to a thriving financial ecosystem. Furthermore, it is the primary determinant of how much you have to work with in the later stages.
I likely don’t need to spend time convincing you that increasing your income is good. But I will say that approaching this step consciously, particularly in 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 you offer and ensuring you receive fair compensation 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 of you – gig work (Lyft, Postmates, Instacart, etc.) is great for this!
- Create passive income streams through online work (e.g., selling prints or digital products) or investing
Step 2: Hold Onto It (Save)
Your monthly savings rate (the percentage of your income you manage to keep each month) is the most critical factor in your financial success. So 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 are 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, 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 saving is crucial is that it is the lowest-hanging fruit in the 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 save 5% of your take-home pay, you can double, triple, or even quintuple that number with only a bit 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 most accessible place for most people to improve but also the most significant multiplier of your success with the other two steps.
Tips for Improving Your Savings Rate
- Start tracking a budget and find out where your largest money leaks are.
- Reduce debt as aggressively as possible, 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 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.
Here 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, complex, and 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 that 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 jeopardize your money as it is to make you wealthy.
Good investing is simple, patient, reliable, and always pays off massively over the long term. So 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 core 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; watch for reactive choices based on mass hype or panic. If your strategy hasn’t changed, your portfolio shouldn’t either.
- Assess any source of financial advice (including the one you’re reading right now!) and understand their motive BEFORE taking their advice.
- Don’t put all your eggs in one basket. Like a robust income, a strong investment portfolio is diverse, not all hinged on one point.
And there you have it. These are the only three steps you need to achieve a life of financial freedom. Earn it, save it, and put it to work. Succeeding with money is nothing more and nothing less than these three steps.
Of course, 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, particularly when making significant, long-term shifts toward healthy 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 always remain. Clutch onto those principles as your guiding compass. In no time, 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 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.