What does financial freedom mean to you?
Is it the ability to work less so you can play more? The freedom to do what you want, when you want? Or just not having to worry about your finances.
Financial freedom is all of these things and more. It’s the holy grail of financial situations. It puts you in a place where you don’t need to worry about money. A place where your relationship with your finances isn’t anchored in scarcity.
Most people in our society have a terrible relationship with money. We’ve all been conditioned to consume instead of invest. Our consumer culture fosters many toxic habits that ensure we end up with no money at the end of every month. We waste our capital on depreciating liabilities instead of cash-flowing assets.
But you know what’s beautiful about the time that we live in?
We have the luxury of choice. We can decide to change our habits and stop indulging in things that don’t serve us for the long-term. Habits are very powerful things. What we achieve over the long-term is a direct result of what we choose to do on a daily basis.
That doesn’t mean things will be easy. It’s really challenging to change bad habits because your brain is following the path of least resistance. Any habit that you’ve had for a number of years is
Achieving financial freedom is all about mastering your psychology and following proven systems are processes.
The first and step is to master your psychology. This is the hardest part for anyone looking to make a big change in their life. It can involve changing your entire identity based on new ideas, concepts and paradigms that need to be realized. There’s no quick magic fix to this one either. It takes time.
One of the most powerful lessons I’ve learned on my entrepreneurial journey so far is that your mindset is 80% of success. Why do you think the failure rate of businesses is so high, even to this day? It’s not just that things go wrong, it’s that the owners respond to adversity and obstacles in the wrong way. Granted, some businesses just don’t work out, for whatever reason, but a significant portion is down to a weak mindset.
How do People Achieve Financial Freedom?
Once you’ve mastered your psychology, achieving financial freedom is just a case of following proven systems and processes. We’re lucky enough to have the ability to create businesses that serve people all over the world and provide location independence and lifestyle flexibility for ourselves.
The key to financial freedom is passive income. This is income you can earn without directly trading your time for money. It’s when you set up systems that make money work for you, instead of the other way around.
There are hundreds of passive income ideas out there, you’ve just got to find one that suits you and stick with it until you start producing results!
The Four Stages of Wealth
I’ve separated wealth into four levels. These four levels form the foundations of any financial situation.
They are as follows:
- Debt: This is when you’re trading your time for money in a typical job as well as having various bad debt that you’re paying off. This could be credit card or student loans or finance debts on large home appliances. Most people in this situation don’t have any money saved up and are essentially “renting” their lifestyle.
- Paycheck to paycheck: You may not have any outstanding debts but you’re trading your time for money and relying on your next pay packet to get you through the month. This isn’t much better than the previous stage but at least you aren’t in the minus with regards to your net worth (even if it is practically zero).
- Net worth: Your net worth is the amount of time you can stop working and maintain your current lifestyle. I call it the “freedom ratio”. Let’s say you have $100,000 saved up and your lifestyle costs you $25,000 a year. This means you have a “freedom ratio” of four. Four years that you can spend doing anything but working.
- Financial freedom: The holy grail. The place where everyone wants to be. Financial freedom means your “freedom ratio” will last you for the rest of your life. It’s when you’ve built recurring income streams that pay you well into the future and amass an amount of wealth that far exceeds your lifestyle cost.