What does financial freedom mean? If you ask this question to yourself and ten other people it won’t be surprising to find different answers from all. Even authors, financial gurus, and top advisors have talked about financial freedom in different tones.
For some, it means never having to work again or having huge wealth while for others it may be financial stability or simply being free from financial troubles. Financial freedom is a term that is vastly and liberally used but is very subjective. Even having huge wealth is very subjective as there is no end to how much is enough while life needs can be satisfactorily met with much less than you may imagine.
For one it may mean living a lavish life in a grand bungalow but for another, it may mean selling a Mumbai flat and settling in a village, with the proceeds lasting him a peaceful lifetime.
FINANCIAL FREEDOM: THE THREE CHECK-POINTS
Financial freedom is much more than having money. It’s the freedom to be who you are and do what you want in life. Financial freedom has different implications for different individuals though. And if we are aiming for financial freedom, we are aiming for something beyond the three checkpoints which have to be ticked. Only then could we say that we are financially free in a real sense.
It means having the freedom to maintain your lifestyle after a certain point of time, without having to work for it. Time can be your retirement period, it can be the happening of an unfortunate event, like an accident or failure of a business or it can be that one day when you simply quit your job and start exploring the beauty of this world without worrying about the ‘how to earn?’ part of the money.
And secondly, all your responsibilities and life goals should be satisfactorily met. Having financial freedom also means that not only you can maintain your lifestyle and meet daily needs but also are in a position to fulfill your life responsibilities like child education, marriage, arranging for a residential home, charity, and all other goals you may have.
Lastly, you should be able to sustain yourself for a very long period – a few decades maybe on the loss of income or your entire life or your post-retirement life until you become an old hag. This sustainability means that you should be prepared for and able to withstand any unfortunate event in your life, including ailments and accidents.
FINANCIAL FREEDOM: REALLY?
Financial Freedom, for most people, is the ultimate Goal. But to be realistic, NO ONE chooses to ‘stop’ working or live a life of a wanderer or a lazy person even if there was no need to work. Even the richest person on the planet works very hard but for a different reason. Once the question of making a living is solved, one progresses to the non-material aspects of living. It then becomes a question of your passion, beliefs, and basically what you enjoy doing in life. If it is your work or business, nothing like it.
So what we mean by financial freedom is not something vague or subjective. Financial freedom = freedom from fear. Freedom from the uncertainty of how you will live or do things you need to do tomorrow, irrespective of anything that happens. It is about being ready for freedom from financial worries & equipping yourself with enough investments and insurance for protecting your future needs. When considered in this context, financial freedom looks more like financial well-being for all of us and that looks very feasible and practical and an ‘X’ figure for the same can easily arrive mathematically. We will not talk about that now though. What we are interested in is really how quickly can we attain that freedom of mind & ensure its sustainability. We will now discuss the important steps which can help you gradually ‘attain’ and also ‘sustain’ financial well-being. So here we go:
ENSURING FINANCIAL WELL-BEING
(A) Passive Income: To get rich, you have to be making money while you sleep! A crucial step in financial well-being is not just protecting your income stream, but also creating a second or multiple sources of passive income. This can be in the form rental income, income from investments, side business, etc. Passive income is a must, especially when your primary income seems insufficient or seems at risk or when you plan to dump it in future. In simplistic terms, financial freedom could be closer if – Passive Income > All Expenses. If this can be ensured a predictable future, with a bit of margin, you are in a safe zone!
(B) Good Debt & Bad Debt: There is a distinction between good debt and bad debt and one should understand both and try to be free from the latter. Debt helps you achieve a lot of things in life that are impossible otherwise. You take loans for education, for buying your house, or your car or a businessman takes a loan for filling the working capital gap. In terms of the loan, this equation is necessary to be checked (i) asset is created or some basic /important need is fulfilled (ii) if an asset is created, the minimum return from the asset > interest rate of the loan, without the need for any speculation or leveraging. Using debt to finance short-term, non-important desires like vacations, gadget purchases, etc. is not welcome. Credit card loans & personal loans are the worst because of the high-interest rates they carry. Being debt free is surely a very healthy status to have and is necessary for long-term financial well-being. The thought ‘freedom from debt is financial freedom’ is not entirely misplaced. If you are using debt to own appreciating assets like homes, businesses, etc., make sure that you wind it up soon before thinking of financial freedom.
(C) Risk protection: Protect the downside with Insurance. Secure yourself and your family by taking adequate Medical Insurance, Term Insurance, Accidental Insurance, and Property Insurance. The insurance premium is often considered a burden, but it is the biggest shield you are creating for yourself in your fight for financial well-being. In case of an unfortunate event, your insurance will take care of the extra financial burden in the form of hospital bills, medical bills, and loss of income. Your investments working for your goals will be intact, thus ensuring continued financial well-being, devoid of any shocks.
(D) Staying within your means: Do not go overboard if you enjoy a good income and have created decent assets. Whether any expense is necessary at present and what potential wealth it can create in the future if invested? is a question one should keep asking oneself. Doing this will help us attain financial well-being sooner than we can expect. After that, sustaining your financial well-being will be a challenge. Sustainability is all about continuing to enjoy the lifestyle you deserve not the extravagant lifestyle you see in the movies. It is about staying within your means and within the acceptable boundaries you have planned for yourself.
(E) Don’t Be Stupid: There are many cases of millionaires and billionaires have gone bankrupt. So having money does not mean being rich always. Do not commit stupid mistakes when it comes to money. Many people with the desire to make more money quickly, take wrong investing decisions, which can hamper their finances for a very long period, can even stymie their goal of achieving financial well-being. Beware of ‘Ponzi’ schemes, equity market speculations, or investing in risky products – these things can cost you big in the long run. The better idea is to seek professional guidance and do the basic things right like starting early, saving, investing in the right asset class, being patient, and investing for the long term, etc. Remember you can attain and sustain financial well-being, provided you do not make big mistakes in life.
CONCLUSION
Financial freedom is a mental, emotional, educational, and behavioral process. If we consider it as our goal, it would require us to be and do much more than today. It would require discipline, focus, and to become more successful & stronger in every aspect of our lives. Having money is and will never be enough. How to use that money for our good is what matters. And how to live a life in the end, makes the most difference. The above steps are just a few things that will help you to take control of your situation and start your journey toward financial well-being & freedom.
