Wealth and Freedom. Ahhh – the holy grails of monetary and fiscal success… But what do they mean really? What is financial freedom in its most precise and realistic form?
To be financially free do you have to suffer though a cheap and thrifty standard of living or is it possible for the average person to rise above mediocrity in this area of their life?
Sometimes called financial independence, the term means different things to different people. To some people it conjures up winning the lottery or finding out you just received a massive inheritance.
To others, it brings forth images of frugal living that defeats the purpose of wanting it in the first place. Others picture themselves killing it on shark tank or a mogul in the real estate industry.
The definition I adhere to is that to be economically free you must be able to not work (if desired) and still have enough money to live life fully. This includes purchasing things you want and not just things you need, as well as give to worthy causes.
It is indeed possible to live in a way that is completely nonrestrictive from a fiscal standpoint, allowing you the luxuries you desire instead of feeling you have to live cheaply in order to have freedom.
It’s not an either or proposition. Unfortunately, much of the education surrounding this topic teaches people to plug the little leaks that are draining their bank accounts.
Live like a miser. Save a few dollars here and there. Give up your daily latte, drive a clunker, and eat ramen noodles at home every night.
Somebody has to point out the obvious though – That’s no way to live!
Before we go into depth on what financial freedom is, let’s look at what being free from economic stress is NOT by looking at the 3 most common misconceptions…
3 Most Common Misconceptions of Financial Freedom
Myth #1: You Can Trade your Life for Eventual Freedom.
This is the myth of the masses. Get an education, good job, 401K and other retirement vehicles, then plug away slowly until you arrive. In this scenario, you must spend your existence working hard and slaving away your entire life just to retire on a measly percentage of your normal income (or a little more if you’re lucky).
In this case, when (and if) you retire you probably won’t be able to enjoy it as much as you would have when you were younger. In addition, if you’ve built up a “nest egg” you’ll probably be slowly eating away at it from month to month hoping you don’t run out of dough and need to move in with your children.
In a slightly better scenario in which you have more cash reserves, you do have enough to live off the interest or investment income without touching the principal… provided there are no emergencies, big purchases, or bumps in the road of life.
But what if unforeseen financial burdens do come up that weren’t part of your plan? Luckily for you, there is a law in the universe that disallows bad things to happen to you financially after you reach a certain age (yeah right).
The trading time for eventual freedom strategy is a myth because it’s focused on the long game. When I think about people who are financially able to do what they want, when they want, I don’t picture an old retired couple who have paid off their mortgage and still follow a budget based on their pension.
That’s not freedom to me. Thankfully, there are ways to create substantial income that everybody can do.
Myth #2: If you’re the boss, you have arrived.
This is a dangerous myth because it is so pervasive in our culture. Owning your own business is the epitome of arriving. People in 9 to 5 jobs dream of the day they can have their own business and not have to work for “the man”.
The problem with this myth is that unfortunately, many people trade in their job only to later realize they traded down instead of up. They moved from a steady paycheck to a steady headache.
Unrealistic expectations are one of the key contributors to why many businesses fail. Last time I checked it was right around 50%, the same general rate of failing marriages (also caused by unrealistic expectations).
Owning a business is a great first step. But expectations need to be realistic. You must understand that typically in the beginning you may need to work longer and harder to make the same income you do in your job.
You will also need to choose the right business and structure it in a way that it is scalable so you can get away from trading time for money. Structure, profitability, and scalability are of utmost importance if you want your business to work for you rather than the other way around.
Owning your own business can be a good first step, but it is not the final destination and if not structured correctly can simply become a glorified version of your job.
Myth #3: You Can Save Your Way to Financial Freedom.
The idea behind this is that if you cut expenses enough, live frugally enough on your current salary, and save you will eventually arrive at the destination (financial independence).
The thinking goes that if you save enough, you’ll get there. The problem is it’s simply not true and sadly too many people find out they bought a lemon of an idea forty years too late.
This idea usually goes hand in hand with myth #1. It sounds good and can even look fantastically good on paper. Numbers don’t lie, right?
The problem is what looks good on paper isn’t always practical and life doesn’t always abide by the rules. Consider the following:
1) What happens if a major illness causes massive financial loss for you and your family?
2) What if your investments don’t grow at the projected growth you were told (sold)?
3) What if you save enough only to be affected by bad economic timing and the markets tank at the precise moment you were supposed to retire and be happy? (many found themselves in that position during the 2008 financial crisis).
Unless you have a high paying job (and I mean really high paying – think dentist, surgeon, or anesthesiologist) and live like a pauper you won’t save your way to wealth. Besides, even if you did, do you really want to work hard you’re entire life just to live like a miser?
This doesn’t mean there is no place left for saving. Saving has its purpose and can be leveraged to create wealth but its primary purpose should not be to try to save your way to wealth and financial independence because it’s not as safe as your financial salesman… oops, I mean “adviser” led you to believe.
So do away with the common misconceptions and look at financial freedom from a different perspective. If you want to be where most people are NOT, you’ll have to do things that most people are NOT doing.
The way of the masses will get you the results of the masses. If you’re reading this, my guess is you desire more.
Below are the five pillars that once put in place will take away the majority of stress resulting from money issues in your life. They are not meant to be implemented over night.
Rome wasn’t built in a day (how’s that for cliché). Life is a journey and so is reaching any goal worth striving for. That being said, let’s get to it and unpack some of these ideas…
Pillar#1) Ability and Willingness to be Generous.
This first pillar is one that is often overlooked and/or ignored by people. The idea of giving generously with what you currently have is something many people don’t think about. They think they’ll give more when they have more.
I was raised from an early age to tithe. If you’re not familiar with that term, it simply means to give 10% of what you earn back to the church. After all, they’ve got overhead to pay as well.
There are different perspectives on this. For example, can tithe be given to anybody or should it be a religious organization? Is it 10% of net or gross? Why give away anything at all?
This can be an emotionally charged topic. After all we’re talking about faith and money at the same time. The only thing that could fire people up more is to throw politics into the conversation. So I’ll lay out my views and you can decide for yourself, take ’em or leave ’em, you won’t hurt my feelings.
First, the idea of tithing is based on scripture from Malachi 3:10. It states “Bring the whole tithe into the storehouse, that there may be food in my house. Test me in this,” says the LORD Almighty, “and see if I will not throw open the floodgates of heaven and pour out so much blessing that there will not be room enough to store it.” (NIV)
This is the only place in scripture where God invites people to test him. In fact, other scriptures specifically forbid it. Deuteronomy 6:16 for example says “Do not put the Lord your God to the test…”.
However, in this scripture he invites us to test him and offers us a see what happens promise. Basically he says do it… then see what happens. See if He doesn’t give you more blessing than you can store.
Regardless of whether you believe in scripture or not, there is an underlying principle at work here that gets results. I’ve seen it in others and I’ve seen it in my own life. The scripture specifically says to bring it to the storehouse so there will be food in “my house”.
That being said, I tend to believe you’ll gain nothing unless you are giving it to the church. This is the first pillar to building riches and securing freedom financially.
This particular pillar is like divine insurance for your building project (a house of wealth). You can still build without it, but if you have insurance and something happens, it’s less likely to completely derail your plans.
So put God (or the universe) to the test and see if He doesn’t bless you. If you’re blessings do indeed arrive, just remember who told you – it was God (not the universe).
If you aren’t part of a church, the good news is they’ll still take your money. If there is an entity up there who has laid down this as a universal financial law, the only thing you’ll be hurting by not doing it is your bank account.
Realistically, the worst thing that can happen is you get to write off more on your taxes.
So give it a go, you won’t regret it. I would also suggest, while you’re at it, to stay for the message from the pastor, maybe he’ll say something that resonates with you.
Pillar #2) Living a Debt Free Lifestyle
This is a hard pill to swallow. I’m an American, what can I say. We are indoctrinated with the idea that debt is no big deal in our culture from an early age. Years ago I filed bankruptcy and my wife and I have never had a credit card since.
Amazingly, we’ve never been emotionally or psychologically damaged by having to wait for what we wanted. In fact, it can motivate you to work harder and even make you wiser in your spending.
However, I still owe on both my homes and one of my cars. More importantly, we both owe on our student loans which to this day is the worst financial decision of my life.
There’s a lot of literature out there telling people good debt is okay and to use money as leverage to financial independence. I don’t buy into this thinking.
The problem with this is that we are all human. It only takes one mistake or one bad year to suddenly be in over your head if you’re leveraged. I run all my business ventures now without borrowed money.
Is it slower? That depends on how you look at it.
Debt could speed things up or set you back by years. It’s like rolling the dice. Yes, you could make a million faster. But you could also become completely upside down faster as well and take years to crawl out from under it.
Speed is relative. There are plenty of benefits for doing it debt free though.
Safety for one. I wholeheartedly believe it’s safer. The main benefit of operating a debt free business is that I don’t constantly need to produce in order to pay somebody else (i.e the bank, credit card, or investor).
I don’t have to worry about raising enough each month to service my debt.
Think about this from a real estate perspective.
If you leverage debt to build a real estate portfolio, you can create more income in the form of cash flow because you’ll be able to buy more real estate. But at the end of the day, you still owe a monthly payment to that portfolio debt so you aren’t technically free.
Debt can be the difference between easily maintaining a business entity or barely making ends meet.
Additionally, operating a business debt free forces you to take time to strategically think about how to use your cash reserves. If you only have $35,000 at a particular moment, you can’t use it on too many different opportunities without making it less effective.
With leveraged debt and a history of successes under your belt, the right partner would continue making credit available to you if you’re making money. Eventually though, it could all come down like dominoes because you may go “all in” on something you shouldn’t have.
Add to all of this the fact that when you operate debt free, your biggest risk is losing the money you personally invested. There is a bottom, it’s called “zero”. Once you run out of money you’re done.
That’s not so with debt because as long as somebody will loan you money, you can continue to go far below zero and the only way out is to building back up to zero and then some.
You may have remember learning about this in middle and high school, it’s called negative numbers. Taking all this into account, it should be clear that borrowing money is not the best option, even if you’re using it as leverage to go faster or bigger.
If something goes sideways, you don’t have to spend the next 20 years trying to fix it or dump extra money into it trying to keep it alive.
A dead idea should be allowed a graceful funeral, not resuscitated with debt.
By the way, operating debt free also increases your quality of life by decreasing some of the mental and emotional stress of operating trying to make payments.
Pillar #3) Relinquishing all Job Responsibilities (if desired)
This is the pinnacle pillar. It is the simplest definition of what we are discussing here, financial freedom. This is where most people want to be and the one thing that would make them feel they have achieved financial independence.
This pillar is similar to a load bearing beam in a wall. Without it then there really isn’t a point to what you’re doing. Without this central idea, why build the house to begin with? What would be the purpose?
The reason I include it as a pillar is because it’s the central building block that gives purpose to your actions. I starts as a thought, an idea you want to make reality.
If financial freedom is your goal, it’s important that all your decisions and business building activities be put under the scrutiny of this one idea.
Otherwise you will build a business only to find out that you work for the business rather than the other way around. Keeping this idea in the front will also help remind you that debt payments are bad because they take you off course of your end goal, the big picture.
At the end of the day, you don’t want any monthly obligation that will force you to need to keep working.
Pillar #4) Freedom of Financial Restrictions
This pillar is another idea. But the idea has to be brought into reality if you hope to make it to financial freedom.
Freedom from financial restrictions is the truest definition of financial freedom and what most people think of when they think of being financially free.
It’s not just being free from needing to work to produce income, but it’s at least one level higher than that. It’s having the ability and time to do what you want, when you want, without any financial restrictions because you have the means to do it.
Please don’t leave this pillar out in your thinking. Too often people exit the rat race just a bit too early and end up stuck. They have just enough cash or income to not work, but not enough to do whatever they want.
So before quit your job or “retire” early from your revenue streams, make sure you have built up enough ongoing income to fully meet your wants (not just your basic needs).
The key word here is wants. When you’re finances allow for this, you can officially quit working and enjoy life floating above the worries of financial pressure. This pillar has to be built after pillar 3.
In all honesty, you can’t be sure exactly what you want until you have reached the point where you don’t need to work anymore. Then you’ll have enough clarity to really take a look at what you want financially.
This is because usually when you’re trying to build income to stop working, you tend to convince yourself that you really don’t want the extras such as a vacation home, boat, yacht, plane, helicopter, etc… there’s no limit on dreaming big when you start building the fourth pillar though.
After you’ve built and are able to implement pillar three (quitting your job), you can really examine what you want. Do you want more than anything to be free right now or do you want more? If you just want to sit home watching Netflix, that’s okay. If that’s the case, you are ready to quit.
But if you happen to want more than that, then don’t quit yet. How much more would suffice? What does your spouse want? What do you want for your kids that you can’t yet afford?
These are important questions you’ve got to answer if you want complete financial freedom. Once all your thinking and financial habits are in place, building the next pillar will be more exciting and more efficient.
Pillar #5) Harnessing Multiple Streams of Income
This is the “how to” part of financial freedom. You won’t save your way there. You certainly won’t 401k your way there and it’s unlikely you’ll lottery your way there either.
But by implementing this 5th pillar, everyone has the ability to be debt free and have enough cash coming in they don’t ever have to worry about money again.
This topic could stand alone or even be a book so I’m only going to cover the very basics here. It’s up to you to be creative and put in the work to execute on this principle.
Let’s take a little time discussing multiple income streams of income and positive cash flow.
Income streams are just like real streams except instead of water flowing in the stream it’s money… maybe melted gold if it helps your mental picture.
Income streams should be coming into your life from businesses and investments you have created. The term income stream is used a lot, so I use the term for familiarity and SEO purposes. However, it’s better to think of multiple income rivers.
The larger the river, the more income you’re producing. Forget the income stream… you want a river and the biggest income river you can create.
Additionally, if you have one river producing predictable income every month, then it’s time to build another one.
They typically start as streams but the goal is always (and should always be) to build them into rivers as quickly as possible. $350 a month is great, $3,500 is better, and $35,000 per month is even better. I’ll stop there because many people believe $35,000 a month is ridiculous.
As you learn and implement these ideas though, you may find your mindset changing and someday you may think $35,000 a month is a small income stream.
Just like speed, it is relative to where you are. Your definition of what constitutes an income stream as opposed to an income river will change over time.
In order to create rivers of income, you must be doing something that is scalable. If your margins aren’t enough to enable you to scale whatever you’re doing then you have to find a way to improve your margins, increase the consumer’s price, or both.
This pillar takes practice, creativity, efficiency, and thinking outside the box. It is also the pillar that if properly executed on, can reduce a heck of a lot of financial stress in your life.
Your focus should not be to make as much money as possible by trading time for dollars anymore. When building streams of income, your idea must start with finding something that will produce a positive cash flow and then implementing systems to grow that revenue model.
Otherwise, when you need money you’ll need to pan for gold on your own river (i.e physically working).
If you’re physically and actively working in your river, you can’t go build another one. A system has to be in place to funnel the money for you. At the end of the river should be a digital dam or basin that catches your river- that dam’s name is your bank account.
If you set it up with the end in mind and proper systems in place, the only work you should have to do once you have your massive financial river flowing is withdrawing money.
Take a moment now to stop and think:
What are you doing that ties you down more instead of releasing you to build your income river?
What expertise or product can you bring to the market that could produce passive cash flow for you?
Is there a product or idea you just haven’t had the time to implement but you know it would be a game changer?
What exactly is financial freedom to you- how would it look specifically in your life?
John Maxwell says “Ideas have a short shelf life. You must act on them before the expiration date.” So seriously, take time right now to stop and think about it. Then take another moment to write it down (seriously, grab a pen and start a 5 min. timer on your phone and do it RIGHT NOW!) Then start acting on those ideas.
Ideas or questions? Please share your thoughts in the comments section, share on social media, and/or reach out to us.
We’d love to hear from you and maybe my readers or myself can add value to what you’re thinking or doing.
– Jason & Daniele