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Aug 04

Myths About Financial Freedom

Financial freedom

Financial freedom

From my perspective, there are a lot of myths about financial freedom so in this post, I’d like to unravel some of the mystery surrounding financial freedom.

Let me start by asking,

“How do you define financial freedom?”

I asked that question to a group of women in one of my seminars and here are a few of their answers:

  • Financial freedom is being completely debt-free.

  • Financial freedom is having no debt and a million dollars in my savings account.

  • Financial freedom is having enough money to retire and tell my boss to take a hike.

  • Financial freedom is having enough money to do whatever I want to when ever I want to.

Four completely different answers tells me that there is no right or wrong; financial freedom means something different to each person.

The Wikipedia definition for financial freedom states: “Financial independence is a term generally used to describe the state of having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income that is greater than their expenses. It does not matter how old or young someone is or how much money they have or make.  If they can generate enough money to meet their needs from sources other than their primary occupation, then they have achieved financial independence.”

Four Myths About Financial Freedom

The fact is there are a number of myths surrounding financial freedom. Starting with the word “freedom”.

Myth #1 Financial freedom isn’t about how much money you have in the bank.  There are lots of people with hundreds of thousands of dollars or even millions in the bank who live their life in fear.  They are afraid of losing everything in a market crash. People who live in fear like that are anything but free.

Others are afraid of outliving their money. No matter how much they have, they are afraid to spend money and they work themselves to a frothy mess trying to acquire more.

Myth #2: Financial freedom isn’t a magic number.  Financial freedom is more about lifestyle and quality of life. It is about how you define abundance in your life. If you make $2,000 a month and live in Manhattan, you may have to settle for scraping by each month because you may not be able to live what you consider an abundant  lifestyle when you consider the price of housing, food and auto expense.

But that same $2,000 will stretch into abundance in a city like Caracas where basic living expenses are cheaper.

Myth #3: Financial freedom isn’t just about income. Over the many years of advising individuals and families about their personal finance I have observed what is commonly referred to as affluenza. In other words there are people whose relationship with money is skewed to believe that the more they make, the more they should spend.

No matter how much income they have, people with affluenza spend more than they take in on newer cars, bigger houses, boats and other luxury items. Because of their consumer spending, people with affluenza have very little in savings and a large consumer debt which means they have a low net worth. (Net worth is found by subtracting what you owe from what you own.)

Affluenza ends up being very stressful whereas financial security leads to greater peace of mind and quality of life. The key to enjoying wealth is to invest as much savings as you can into money-making assets.

Myth #4: You don’t have to wait for retirement to declare your financial independence. Retirement has little to do with achieving financial freedom. In fact, after interviewing nearly 300 self-made millionaires and working with a number of multimillionaires, I can tell you this…most millionaires don’t plan on retiring.  That may sound strange but why retire when you love what you do?

If you are doing something to add value to peoples lives and are getting paid well for doing what you love, why retire? Bill Gates, Donald Trump, Michael Dell, Oprah Winfrey, Warren Buffet are all doing what they love to do.  They followed their passion and pursued their life purpose into creating a business that brings value to millions and they are paid well from following their passion.

The result of pursuing their passion brought financial freedom into their lives.

With all that in mind, here is my definition for financial freedom:

Financial Freedom Defined

 

I used “passive income” in my definition and if you read my posts about passive income you know that I think a better word for passive income is “leveraged income”. I used the term passive income because that’s the term most people seem to understand.

But the bigger point here is financial freedom isn’t a magic number; it’s an effect of following your life purpose and passion into the quality of life that brings you enjoyment and satisfaction.

Thanks for reading this post.  If you have gained value, please feel free to share the love with your friends and family.

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