Blog | Personal Finance

Define Financial Freedom

No matter how much money you make, you need to change your mindset to be truly free

Summary

• Financial freedom is about much more than just having money

• Having the right mindset is how you truly define your financial freedom

• Being rich doesn’t make you financially free

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Oftentimes, people will 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.

Take for example, the article: “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 only would last 11 years. Without knowing how to put that million dollars to work, many people would run out of money in their retirement well before they passed away.

How most people define financial 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 work hard all their life, but instead of enjoying the fruits of their labor, they’re forced to decrease their quality of life instead. It just doesn’t make any 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.

Rich dad 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.

Emotional intelligence will define your financial freedom

In order to move from a life led by fear into a world of abundance, you need to master your emotions, and that takes a high emotional intelligence.

Shortly after marrying, Robert and Kim Kiyosaki decided to move from Hawaii to California. They were almost one million dollars in debt and understood the only way they were going to get out of that situation was through building their own businesses. There was no way a corporate job was ever going to pay them enough to get out from under that amount of debt.

Within a few months after landing in California, they had run through what little money they had. The business they were looking to start wasn’t working out like they had planned. For a short time they were even living in their friend’s basements. There were many times they both wondered if they were doing the right thing.

But before they left the sandy beaches of Hawaii, they had made a decision. Above all else, they wanted financial freedom. And it was during these dark days in California when they often questioned whether they would let fear drive their decisions or would they develop the emotional intelligence required to eventually achieve financial freedom.

Looking back, it’s clear that if it weren’t for their dedication to reading books and attending seminars during those tough times, they would have never developed the emotional intelligence required to one day become financially free. It took seven stressful years but in 1994, when their passive income surpassed their monthly expenses, they were finally out of the Rat Race.

The difference between financial independence and freedom

Financial freedom is different from financial independence. As you can read for yourself, financial independence is a simple three-step formula:

1. I buy and create assets that generate cash flow
2. The cash flow from my assets pay for my living expenses
3. Once my monthly cash flow from my assets is equal to or greater than my monthly living expenses then I am financially free because my assets are cash flowing and are working for me.

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.

Be free to be who you want to be through #financialfreedom

Financial freedom is much more than having money. It’s the freedom to be who you really are and do what you really want in life. And many of us lose sight of this by putting others first and playing many different roles such as parent, spouse, employee, friend, and more.

It’s not that those are bad things. Rather they are things that often get in the way of discovering who we want to be in life and going after it. The amazing thing is when you invest in yourself, it pays big dividends not just for you but for all those who love you. They see both your example and experience the joy that comes from realizing your greatest potential.

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 to become the most powerful, happy, and successful “you” possible. That is the true reward of financial freedom.