Seeking Financial Freedom

Financial freedom, or financial independence, has gotten a lot of buzz post-2008, and it basically means that you can support yourself without working for earned income, i.e. trading hours for dollars. This can be through investments in the stock market or real estate, or another form of “passive” income such as a side gig or online business. I say “passive” because there is typically a large upfront time investment but then lesser so once it’s more developed. The main point is your income is not limited to the number of hours you can physically work. Instead, your investment, product, or service make you money through systems you’ve put into place.

Financial freedom is key to asserting control over your life because it gives you the space to choose – choose where you want to live, what you want to do with your time (and this can still include working), and with whom you want to do all this — instead of being beholden to a paycheck, which may or may not be enough to make ends meet. Getting to a point of financial freedom is a great goal to work toward – I’ll admit it’s much easier said than done…. However, imagine you could choose these things, would you make any dramatic changes from how you are living your life now? Are you living according to the values you say you have and fulfilling your priorities? Take a moment and think about your life goals and why you want them. It’s a powerful tool to have that desired vision in mind and then examining the delta, or difference, between that and where you are today. When it comes to getting our financial houses in order, we don’t all start at the same place or have the same finish in mind, but here are some simple steps to get you started on your path to financial freedom:

Phase 1 – A Reality Check

• Track your spending. “Where does all my money go?” Answering this question is the beginning of this journey and vital to getting you on a path toward financial health, let alone freedom. You can do this in an Excel workbook or one of the many apps on your phone. The method is not as important as picking something you will actually use and stick with. You need to start with the data.
• Scrutinize your spending. “Why did I spend $150 on fancy coffee this month? Why am I in so much debt?” This is where knowing your income ceiling and your priorities is paramount. Sure, saving $5 here or there on lattes does not make all your troubles disappear; however, if they are not as important as the change you need to make, then they need to be on the chopping block. Small changes can get the ball rolling on the discipline you need to take on bigger cuts. And just think, if you make enough progress, you could potentially bring these back, or you might surprise yourself to realize that they weren’t as necessary as you originally believed.

Phase 2 – Righting the Ship

• Identify and start cutting unnecessary expenses. Now that you know where your money is going and compared them to your priorities, where can you cut expenses? Start by categorizing and color-coding. Using your tracker, highlight your truly necessary expenses. But because even some of those can be substituted for less expense options, such as a cheaper rental or car insurance policy, use one color to denote line items that are truly non-negotiable or changeable (such as debts), and another for items that you cannot change instantly but could change over time. Then use another color for instant areas you can make changes. See the SHL Savers Series [link] for tips!
• Explore new ways to generate income. Depending on the urgency of your situation, you could go get another job, and if that is where you are, do what you got to do. Are there things around the house you no longer need but could sell? Do you have time to start a side gig? Think about what skills and interests you have that others would pay to benefit from and research ways to monetize them. But, since there is only 24 hours in a day and sleep is important, also look for ways to generate passive income versus earned income so you can no longer be limited to hours worked. This is where the real magic happens.
• Invest in your financial literacy education. This is a critical step in your journey to financial health and unfortunately not something most of us learned growing up. It’s ironic that, despite Benjamin Franklin’s statement in 1789 that taxes were one of the only two things certain to man, the U.S. school system in over 200 years has failed to teach us anything about them. And in many homes, talking about money is too taboo. Self-study is a powerful tool: I listed here several foundational books and resources that were pivotal to my learning about achieving financial freedom. I also recommend finding others you can learn from. Often you can reduce your own learning curve by learning from others’ mistakes and lessons. Work smart, not hard. It may also be wise to solicit professional help depending on your situation and goals. For example, despite having done more than many to study taxes, I paid for professional tax strategy and planning. It wasn’t cheap, but it was invaluable for setting us in the right direction so we didn’t miss tax savings opportunities for years to come or have to go back and fix significant tax filing errors. For others, professional financial counseling could prove incredibly beneficial, especially if accountability helps with motivation for making the needed changes.

Phase 3 – Transformational Change

• Congratulations, you’ve achieved financial stability! However, hard work toward achieving financial freedom is still ahead. As I mentioned, the goal is to live off of money your investments make for you (they aren’t limited to a 24-hour day!). Using your new financial literacy, your new network, and your goals, you need to develop an investment strategy for financial freedom. I have included some ideas in this post, but this will be completely personalized to your own situation and goals. Personally, my favorite investment tool is real estate because I have always loved touring homes, re-imagining them, and bringing that vision to life. I also invest enough in the stock market to get my employer match (I don’t want to let free money go to waste!). Building businesses is our next adventure. You definitely do not have to pick only one! The tax code provides a plethora of tax incentives across different economic sectors from which you can choose to get out of the rat race. (Disclaimer: I am not a financial planning professional, so please seek professional advice based on your unique circumstances before investing in the various asset options available.) I found Robert Kiyosaki’s Rich Dad’s Guide to Investing very helpful to putting all this into perspective and to generating new ideas. There are nearly unlimited resources out there, you just need to make it a priority and get started.

No, this will not be an easy or probably straight path. Changing the trajectory of one’s life takes incredible perseverance, discipline, and will power against the lure of inertia. I know there have been many days when I question why I had to go and get myself into something new, rather than just settling for my original direction. But in the end, I find that through the new challenges I meet new people who inevitably open the doors to even more opportunity and success, or at least learn a valuable lesson for the next endeavor. It may be feel like one step forward two steps back. Yet I bet that next time, taking lessons learned, you moved 10 steps forward. So make today a day in the right direction, toward achieving financial freedom and the life you have designed. Because dreams are not found, they are seized!