Many people think financial freedom is all about eliminating debt, and that’s partly true. But what does financial freedom mean personally to you? Everyone has a different idea of what feeling economically secure means. It can depend on everything from your age to your life experiences, too. As we get started, see if any of these ideas resonate with you:
- Living well without a paycheck
- Quitting your job or taking one you’ll love for less pay
- Having emergency funds
- Having zero credit card debt
- Paying for your child’s college in cash
- Paying off your mortgage
- Living off of investments
- Building your family’s financial legacy
- Taking early retirement to travel the world
- Living panic-free when a bill arrives
Financial freedom to you could be a combination of these points. The bottom line is that financial independence means you have options. It means you don’t have to decide what necessities you can and can’t pay for, says Chris Hogan, best-selling author and financial coach.
Financial freedom is a pressing desire for many of us. But progress is only sustainable when you have a clear and personal definition of financial freedom to keep you moving forward. These three steps can help you figure out your personal definition of living financially free.
Step 1: Eliminate Feeling Overwhelmed
It’s tough to get a clear vision in your mind of financial freedom if you’re feeling helpless or hopeless about your situation. When you gain even a little bit of control over your financial picture, you’ll begin to feel relief and the ability to clarify your definition. The first thing you need to do is know where you stand. Apps like Turbo gather all of your income, credit and loan details in a single account dashboard. Start by checking out your credit score and debt-to-income ratio. Then you can really face your current financial picture by doing the following:
- Writing down your debts
- Opening your bills
- Making a plan to pay down outstanding bills and debts
- Building up an emergency fund a week at a time
- Maintaining healthy money habits by learning to budget with apps like Mint
- Dedicating time to learn about investing
Go a step further by doing your own taxes. Knowing how to do your own taxes is easier than ever before and lets you see your big financial picture. Finish by calculating your net worth, which is an important barometer of your financial health.
Step 2: Eliminate the Myths of Financial Freedom
There are plenty of myths about financial freedom, what it means and what it should look like. Clear up those myths swirling around in your mind. What emerges will be your true definition of financial freedom.
Myth: Financial freedom is all about how much income you make.
Fact: High incomes don’t guarantee financial freedom. There are many exceptions. High-income earners can easily spend their money on high living expenses or live beyond their means. This can take away from their goals of financial freedom.
Myth: Financial freedom means you have millions of dollars in the bank.
Fact: Those who are financially free might not have substantial cushions of money but may instead live frugal lifestyles.
Myth: Financial freedom means you live in a mansion and drive a fancy car.
Fact: Of course financially free people can live in nice homes and drive upscale cars. But they don’t feel pressured to look good. Dave Ramsey, author of The Total Money Makeover, says taking on car payments can eliminate a chance to build wealth.
Myth: People with financial freedom are unethical.
Fact: It’s a perception based on our own envy or the feeling that life is unfair to us. Stories in the media may also stoke this myth. People with financial freedom can be some of the most generous, down-to-earth individuals.
Step 3: Visualize Your Brand of Financial Freedom
You’ll soon have more control over your finances and have eliminated misconceptions about what financial freedom should look like. Next, fill in the blanks with your own version of financial independence. Ask eight questions to arrive at your personal financial freedom mission statement:
- What do you want to do in five years that you need to save money for now?
- What one major financial goal do you want to accomplish in a year?
- What steps will you take this month to get yourself closer to that goal?
- What are your top two financial worries?
- How much financial help are you willing to give your child or family member and why?
- Which major life purchase makes you smile and feel excited?
- Which major life purchase makes you feel sad or regretful?
- Imagine the day you claim your financial freedom. Where are you, what are you doing and who are you with?
Start a journal with your goals written out. Research in neuroscience shows that there’s a physiological response to writing down goals. The act of writing helps you encode them in your brain and transform those thoughts into reality. Your definition of financial freedom may shift over time. With more clarity in place, you can enjoy the journey and make it your own.