Blog | Personal Finance

What Is the Meaning of Financial Freedom?

No matter how much money you make, you need to change your mindset to be truly free. It’s time to define true financial freedom.

Summary

• People define financial freedom differently - but there’s really only one definition

• Having lots of money doesn’t mean you’re financially free

• Developing true financial freedom requires understanding of money, and a financial education

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You may often hear people say things like, “If I only had a million dollars I’d be financially free,” or “If I only had that high paying job, all my money problems would be solved.”

The problem with statements like these is that they assume having a lot of money is what leads to financial freedom. It does not. In fact, you can have a lot of money and still be poor. You can have a lot of money and still not be free.

Take famous people like Ed McMahon from “The Tonight Show” and Nicole Murphy, the ex-wife of actor Eddie Murphy. Each had millions of dollars and lost it all. Nicole Murphy spent her $15-million divorce settlement in less than four years. And towards the end of his life, Ed McMahon faced foreclosure on his Beverly Hills home and owed $747,000 in credit-card debt.

It’s not just a really rich person problem, either. We often think a certain amount of money will provide financial freedom, but we’re often dead wrong about how much we really need.

This is discussed briefly in the post “The Poor Mindset of a Millionaire.” As written then, “The USA Today reports that at least 37% of Americans believe they’ll need at least $1 million saved up in order to retire safely.” The problem with this is that a million bucks only lasts around a couple decades in many places. And in the state of Hawaii, it would only last 11 years. Without knowing how to put that million dollars to work, many people would run out of retirement money well before they passed away.

How most people define financial freedom

How often do you sit in your cubicle, daydreaming about what it would be like to quit your boring nine-to-five job? Do you have that one friend who always seems to be on vacation and living life to the fullest — and wonder how they pull it off? Have you ever thought about selling all of your possessions and starting a new life somewhere else? Do you wish you could leave your relationship but feel stuck because of your financial dynamic? Do you often wonder if you could somehow turn your pottery or photography hobby into a real business?

If any of these scenarios sound familiar, then chances are, you aren’t experiencing freedom.

Most people define financial freedom as having enough to retire. They work hard all their lives, putting money in a 401(k), and like mentioned above, they hope they can make their proverbial million dollars or whatever number they have in their head. Oftentimes, because they will not have steady income outside of their savings and investments, these people are advised by their advisors to cut back their expenses in retirement and live below their means.

They spend their entire lives in labor just to decrease their quality of life when they’re ready to enjoy the fruits of their labor. It makes absolutely no sense, and it certainly doesn’t feel like financial freedom.

The true meaning of financial freedom

The reality is that financial freedom is not about how much money you have. Rather, it’s about a change in your mindset.

Financial freedom is about much more than just having money. It’s the freedom to be who you really are and do what you really want in life. It’s about following your passion, making choices that aren’t influenced by your bank account, and living life on your terms.

If you want to be financially free, you need to become a different person than you are today and let go of whatever has held you back in the past. It’s a process of growth, improvement and gaining spiritual and emotional strength. In other words, whatever has held you back in the past or kept you less than who you really are will have to vanish.

Don’t let the fear of “money problems” hold you back.

In fact, Robert’s rich dad (his best friend’s father) said, “There are two kinds of money problems. Not enough money, and too much money. Which type of money problem do you want?”

Scarcity vs abundance mentality

According to rich dad, there are two types of people in the world. Those that live with a scarcity mindset and those who live with a mindset of abundance.

By the former, what he meant is that many people see a world that is scarce. They think there is not enough to go around, so they operate out of fear. Fear clouds their decision making and keeps them back from doing great things. Fear makes them treat others poorly and look at everyone as a potential enemy who can take what they have. That kind of mindset is a prison.

Other people see the world as one of abundance. They don’t think there’s not enough to go around. In fact, they think that there’s enough for everyone to prosper. And when there’s not, they find ways to create enough. These are the people who start businesses, make winning investments, and live life to the fullest. They are often the nicest and most generous people you’ll ever meet. They are living a truly free life.

When you realize that the world is one of abundance, you stop operating out of fear and instead you start asking, “How can I tap into that abundance?” Once you start asking that, you start seeing the world and how you interact with it in an entirely different way. Then you’re ready for financial freedom. Why? Because the fear of losing money doesn’t control you. You’re free to learn and grow. You’re free to obtain your wealth, not just financially, but also physically, emotionally, and spiritually.

Money Does Not Make You Rich

Just because you have money does not mean you have financial freedom. Take, for example, Ed McMahon and Nicole Murphy, as mentioned above.

Both of these examples illustrate that having a lot of money means nothing if you don’t know what to do with it.

Of course, it’s also important to note that money isn’t the thing that makes you truly rich, either — it’s the freedom that comes from pursuing whatever brings you joy and provides you with fulfillment that makes you rich. The whole point of financial freedom is that once you become financially free, you have more choices of how to live your life and spend your days.

The difference between financial independence and freedom

Financial freedom is different from financial independence, which is made clear in the post financial independence. Below is a summary of simple three-step formula:

1. An investor buys and creates assets that generate cash flow
2. The cash flow from their assets pay for their living expenses
3. Once the monthly cash flow from their assets is equal to or greater than their monthly living expenses, then they are financially free because their assets are cash flowing and are working for them.

While this will allow you to be financially independent, it doesn’t always make you free. If you don’t change your mindset or fall back into a fear-based, scarcity mindset, you can easily lose your money or your investments, or make bad decisions that hurt your cash flow. Perhaps worse still, you can become miserly and miserable, even with lots of money coming in. That is not freedom. It’s being controlled by money.

The most important thing to remember when it comes to money is that money isn’t the point—it’s what money allows you to do and be. Money is just a tool for attaining things that make you truly happy. That is freedom.

What will you do?

Wouldn’t it be nice to reduce the stress you feel about money and your future? Take control of your situation and begin your journey to financial freedom. Start with baby steps and find supportive people to help you. Get a financial education and take action.

To start your journey, begin by reading up on the Triple A Triangle™, where the process has been broken down into three, easy-to-understand areas that include: Aspire to achieve a goal, Acquire knowledge, and Apply what you’ve learned to be successful.

Yes, it can be scary to make change happen, but think about it: if you don’t take action now, what does your financial future really look like? All you need to do is take one step. Do one thing every day that will get you closer to your own financial dream — the key lies in taking action. You simply cannot have something without doing something to earn it.

So, if you truly want it, it’s yours for the taking.

For help getting started on your path to financial freedom, check out our free, financial education resources here.