Financial freedom is a goal that many people strive for, but it can be difficult to achieve without the right skills and mindset.
In this post, we’ll explore the skills needed for financial freedom, share inspirational financial freedom quotes from successful entrepreneurs and financial experts, and explain the difference between being financially free and being financially independent.
What is Financial Freedom?
Financial freedom means having enough money to fund your lifestyle and needs without having to depend on others. Someone who is financially free has enough savings in the bank, several investments, and access to cash when needed.
How Much Money do You Need to have Financial Freedom?
Financial freedom or financial stability does not mean being rich. A lot of people have associated financial freedom with being rich, but in reality, financial freedom is about managing your income so that it covers all your needs and you do not have to be stressed about money.
What are the Five Rules for Financial Stability?
The five rules to achieving financial freedom/stability are;
- Establish your financial freedom goals
- Budget your finances
- Set out money for emergencies
- Live below your means
- Invest in your retirement plan
What are the 7 Levels of Financial Freedom?
The seven levels of financial freedom are;
#1. Clarity
The first level of financial freedom involves getting clarity about your financial situation. Make an assessment of your financial status, taking into account your assets, liabilities, and financial goals.
Gaining clarity about your financial status and your current financial position will help you determine what your starting point should be and give you an overall sense of direction.
#2. Self-sufficiency
The next level of financial freedom is learning to stand on your own. You start leaning towards becoming financially independent. This involves being able to support yourself financially, even without parental assistance. You might be living paycheck to paycheck at this point or taking out loans to make ends meet.
#3. Breathing Room
In the breathing room, you have enough money to set up emergency funds and investments after covering your living expenses
The breathing room involves giving oneself some financial leeway, which doesn’t always mean making more money
#4. Stability
In Level 4, you have cleared high-interest debt, such as credit card debt, and you have saved up an emergency fund with enough money to cover your living expenses for six months. Having emergency funds on hand helps ensure that unforeseen events won’t cause your finances to spiral out of control.
Financial experts advise considering your potential financial situation rather than merely accounting for your regular, everyday spending when determining how much you’d need to save. Consider the absolute minimum you would require to survive.
#5. Flexibility
In Level 5, people have enough money saved for two years’ worth of expenses. With those kinds of funds, quitting your job for a year would probably not have a big impact on you because you can think of your money in terms of the time it can buy you.
You don’t have to carry all of this cash; you may just take out a certain amount from your savings and investment accounts. You have the freedom to withdraw from the workforce, at least temporarily, as long as you can access that money if you need it.
#6. Financial Independence
People who have achieved financial independence can live solely off the income generated from their investments.
When you have financial independence, you have either one of these two things: either a large pile of money in an investment portfolio that’s generating interest, or you have rental properties, and cash flow from the rent covers your living expenses, or a hybrid of the two.
To get here, you’ll likely have to invest a high percentage of your income, which could require you to shift to a more modest lifestyle to drastically lower your cost of living. Pursuing this lifestyle requires a change in thinking.
#7. Abundant Wealth
Abundant wealth refers to a significant amount of financial resources that exceed a person’s immediate needs and allows them to pursue their desired lifestyle without significant financial constraints.
This level of financial freedom allows individuals to invest in assets that generate passive income and achieve long-term goals while providing security and stability.
Achieving abundant wealth requires effort, financial planning, and wise investment decisions. However, it can offer a sense of fulfillment, allowing individuals to live a life of abundance, free from the worries of financial scarcity.
Does Financial Freedom Mean Rich?
Financial freedom does not necessarily mean being rich in terms of having an abundance of material possessions or an extravagant lifestyle.
Financial freedom is a state of being where you have enough resources and control over your finances to live the life you want without being constrained by financial limitations.
While having a lot of money can certainly contribute to financial freedom, it is not the only factor. Financial freedom is more about having control over your financial situation and making wise choices that enable you to live the life you want than being defined solely by the amount of money you have.
What is the Opposite of Financial Freedom?
The opposite of financial freedom is financial bondage or financial insecurity.
Financial bondage refers to a state where an individual’s financial situation is characterized by debt, lack of savings, and limited financial resources. In this state, individuals may feel trapped in their current financial situation and unable to make progress toward achieving their financial goals or enjoying their desired lifestyle.
Financial insecurity, on the other hand, refers to a lack of confidence in one’s financial future, typically due to a lack of financial stability or uncertainty around future income or expenses. Both financial bondage and financial insecurity can cause significant stress and negatively impact an individual’s overall well-being.
What are the 3 Principles of Money?
The three principles of money anyone who wants to achieve financial freedom should adopt are:
#1. Live Below Your Income
This money principle is the foundation of financial freedom. As simple as it seems, it can make or break your financial life. When you are not born rich and have wads of money to spend, the fastest way to save money and build your credit is by spending less than you earn and saving money.
People who save money are less susceptible to financial stress, as they know that if an emergency comes up, there’s a saving to fall back on and also the savings can be used to make investments.
#2. Start Investing Your Money Early
Spending less than you earn helps you save money, but what should you do with the savings? The wrong thing to do will be to let the money sit in a savings account. The right thing to do will be to invest the savings.
Investing is a great way to grow your savings. But when is the best time to start making investments? Early age! Investing your savings at a young age allows you to take advantage of the power of compounding.
Compound interest is when your investment generates interest in addition to the principal of the investment. As a result, your investment will increase more quickly than it would if you left it in a savings account.
The key to a solid financial future is investing. The earlier you start investing, the longer your money will likely stay in the market and potentially generate a return that is greater than inflation. The likelihood that you’ll be able to retire comfortably someday increases if you start early, preparing you for a retirement income stream.
#3. Have Multiple Streams of Income
Having multiple streams of income means earning more money, which will solve multiple problems for you. Multiple streams of income give you a fallback option.
There is a fallback option in place in case your primary source of money fails. This will lessen some of the financial stress that losing a job might bring.
The earlier you can do this to generate multiple streams of income, the better. It means you’ll earn more money and that means having more money to save up for your future. Also, you can make more investments and have financial stability faster.
Financial Freedom vs Financial Independence
The terms “financial freedom” and “financial independence” are frequently used interchangeably. Yet, they are not the same. Both of these terms have distinct meanings and differences.
What is Financial Freedom?
Financial freedom is having enough passive money to do everything you want. It has nothing to do with being rich or having a large bank account; rather, it has to do with being able to take time off work and partake in activities you find enjoyable without having to worry about whether or not you will have enough money at the end of the month or where the money will come from.
You will have attained true financial freedom when your resources allow you to travel and engage in any activity without having to work for it or worry about it.
What is Financial Independence?
When your residual, or passive income equals or exceeds your budget, you have reached financial independence. You can finally declare that you rely solely on yourself at this point. It is a financial situation where an individual does not depend on anyone for financial support and has enough money to cover their present living expenses as well as some additional expenses.
Being financially independent allows you to retire early and maintain your current lifestyle. Building several revenue streams is essential for achieving financial independence. This enables you to continue making money regardless of what you choose to accomplish during the course of the day.
Three Differences between Financial Freedom and Financial Independence
- Financial freedom is the capacity to spend a set sum of money at the moment on whatever you like. Financial independence, on the other hand, has to do with not relying on anyone to pay your bills when you reach retirement age.
- Being financially free means you do not take out loans to fulfill your goals or achieve the lifestyle you want while a financially independent person can take out small loans to make investments.
- While financial independence calls for careful spending while saving up and making investments, financial freedom is being able to spend money as you choose and making little investments.
What are the 3 Steps to Financial Freedom?
The three steps to financial freedom are:
- Establish what your personal financial freedom goals are
- Save money and clear your debts
- Create a budget and adhere to it
Quotes on Financial Freedom
Everyone needs motivation in life. The road to financial freedom can be tiresome and challenging, and you might need some words of motivation. Here are 10 quotes on financial freedom to motivate you on your journey.
- Financial freedom is available to all those who learn about it and work for it. – Robert Kiyosaki
- Financial fitness is not a pipe dream or a state of mind. It’s a reality if you are willing to pursue it and embrace it. – Will Robinson
- 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. – Robert Kiyosaki
- If you will make the sacrifices now that most people aren’t willing to make, later on, you will be able to live as those folks will never be able to live. -Dave Ramsey
- The key to success is to focus our conscious mind on things we desire not things we fear. – Brian Tracy
- Successful people are always looking for opportunities to help others. Unsuccessful people are always asking, ‘What’s in it for me?'” – Brian Tracy
- We cannot move casually into a better future. We cannot casually pursue the goal we have set for ourselves. A goal that is casually pursued is not a goal, at best it is a wish, and wishes are little more than self-delusion. – Jim Rohn
- Let others lead small lives, but not you. Let others argue over small things, but not you. Let others cry over small hurts, but not you. Let others leave their future in someone else’s hands, but not you. – Jim Rohn
- The goal isn’t more money. The goal is to live life on your terms. –Chris Brogan
- To achieve what 1% of the world’s population has (Financial Freedom), you must be willing to do what only 1% dare to do; hard work and perseverance of the highest order.”
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