Living financially free allows you to do what makes you happy without considering the cost. You can spend your money in ways that are consistent with your aims and ideals. It also implies that you can easily overcome financial difficulties if your life changes.
When you read stories about financial freedom, you may hear people go on and on about how they spend almost nothing to retire at a younger age, such as 30. On the other hand, they may have already achieved financial independence and are gloating about how frugal they were to retire well before the average retirement age. Whatever the case, what remains unknown is how comfortable they feel with the money they have in their banks that allow them to feel financially free.
Financial freedom is not about net worth; instead, it is about your mindset. So, if you are after financial independence, one of the first objectives you should put is to define your goals and give your economic outlook a real-life shape.
Here are several levels of financial freedom that you could strive towards.
Level 1
Building an emergency fund is the initial step toward financial freedom. This should ideally involve paying off any credit card debt as well.
Living paycheck to paycheck is the norm for millions of Americans. Unfortunately, most of us may face unexpected expenses such as auto repairs, medical bills, and nights out drinking with friends throughout the year. Having an emergency fund on hand will come in handy in these scenarios.
Level 2
Turning work into an option is the key to financial liberty. Saving enough money to retire is a massive endeavor. However, accumulating enough money to be able to take time off from work is still a significant step in that approach.
Not abandoning your career or business, but saving enough to be able to travel while contributing to your future is the next step toward financial confidence. Of course, this does not imply that you must leave your job, but knowing that you may for a couple of months is comforting.
Level 3
This stage is more about having fun in life and having enough money to do so. There is a tremendous sense of relief when you make enough to save, do the things you enjoy, and still have money left over at the end of the month.
You can use that extra cushion to accelerate your financial independence date. But, of course, this requires that you avoid expanding your lifestyle and expenditure.
Level 4
Many people want more flexibility in their schedules. Financial independence and time freedom go hand in hand. This level of financial freedom is about escaping the rat race to pursue a passion or spend more time with family while not going bankrupt.
It might be additional paid time off, flex time, or occasionally working remotely. For some, not having to take a day off from work to visit the dentist or take their child to the doctor could be a great benefit.
Level 5
Consider what your bare minimum retirement might look like if you wanted to retire early with financial independence. That will help you find the answers to questions that can guide you on your journey to financial freedom, like:
- Could you relocate to a lower-cost-of-living area?
- Would you forego going out to eat?
- Would you lease a new luxury car knowing you’d have to work for a few more years?
- Would you downsize your home if it means you can retire soon rather than in 10 years?
Once you know the answers, you can create a savings account to sustain this no-frills lifestyle.
Knowing you have enough money saved to cover at least some level of living in your early retirement may affect other life decisions you may make along the road. Of course, you will probably not move to that cabin in the woods without running water, but it is great to know you could.
Level 6
Dining two nights a week on the beach may be part of your ideal retirement.
Assuming you are doing well and are satisfied with your current way of living, what would you require in retirement to maintain your standard of living?
Knowing you are on schedule to build a nest egg to maintain that lifestyle is a huge accomplishment. Plan ahead of time if you want money for stuff like this. Gold medals are awarded to those who have amassed enough assets, or passive income streams, to retire comfortably.
Level 7
How good would it feel to know you are on pace to retire with enough money to live your dream life?
Define what keeps you from reaching your sweet spot before you are 70. Consider being strict now in exchange for waving the 40, 60, or more hours per week, preventing you from spending more time with friends and family and traveling more. Yet, decide if that is the life you want to lead and start working toward achieving it right now.
Level 8
This level is likely the most exclusive of financial liberty. Ideally, your financial freedom strategy will enable you to outlast your money. Creating enough wealth such that you cannot possibly squander it all is even better.
In the world of the highest-grossing, that would translate to people who have won the lottery, inherited a fortune, or founded a highly successful business. Think of Bill Gates, Elon Musk, or Warren Buffett. Even if they went into a spending frenzy and bought planes, yachts, and automobiles, they would have difficulty spending it all.
Consider where you believe you fall on the stages mentioned above of financial independence, and use it as motivation to continue working toward your most critical financial objectives. But remember that financial freedom is a matter of choice before all.
