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The Five Steps To Financial Freedom

by Chris Poindexter

There’s a difference between being rich and financially free. Too many people confuse the two and that leads to disappointment and unhappiness. I happen to know some of the richest people in the world, some of whom have been family friends for decades. I can tell you, from up close observation of both them and their friends, that being rich carries a rather large overhead. A big house, okay a mansion, requires staff and a maintenance crew. Believe me when I say it’s a job to manage any organization that size. The more money you have, the more things that you have, the more time and effort it takes to manage it all and the more demands there are on your time. While our friends have never worked a day job they are fantastically busy, with daily demands on their schedule and time that leave them little room for leisure. I would not trade my life for theirs; some things just aren’t worth the money.

When people think about being rich, what they’re imagining more often is being financially free. That means having enough money that you don’t have to be a slave to a day job. It also means having enough money, should you so choose, to go and visit the places you always wanted to see. It means having enough money in the bank that you don’t worry about expensive medical bills or other financial emergencies. Perhaps it also means that, if you’re feeling particularly extravagant, that you indulge yourself a luxury like chartering a private jet. That’s not rich by any objective definition; that’s financial freedom and there’s a huge gap between them. Being rich takes a lifetime of effort and a bit of luck but being financially free can be within anyone’s reach, regardless of your income or station in life.

Live Below Your Means

If you want financial freedom, this is step number one. Live below your means, sometimes way below. Living below your means is the foundation upon which financial freedom is built. This step provides the means to do the rest of the steps. So many people are stretching to buy homes they can’t afford, being suckered in by their own want and a real estate agent telling them they’ll grow into the bigger house. Owning a home nails you to the ground and sucks up a huge percentage of your finances. Keeping housing expenses in check frees up a lot of extra cash but it applies to nearly every facet of your life.

Invest Systematically

The financially free put money for investments at the top of the list and not the bottom. The people who get wealthy enough to quit worrying about money, are the ones who set aside money for savings and investments on payday and not what’s leftover at the end of the month. When the sun is shining on the economy the financially free know that darker days will happen and put money away to get them through the lean times.

Invest Wisely

You’ll rarely find the financially free who got there by having all their money in company stock. The financially free maintain an investment mix that’s appropriate for their age and rebalance at least once a year, selling off some of their investments that have done well and picking up more of those still on sale. They invest in dividend funds and income investments, like REITs and municipal bonds, then plow that money back into their portfolio. You won’t get rich fast that way, but you’ll get there eventually.

Stay Mobile

This is a hard one because it means giving up so many things with emotional appeal. Renting instead of buying a house means you’re able to move when more lucrative opportunities present themselves. The truly mobile can consider jobs like working on cruise ships, where living quarters and meals are frequently supplied along with a salary. The mobile among us can also consider RV living and other alternative low-cost living arrangements.

Eschew Debt

This one should be obvious. The financially free among us shun debt like it’s a disease. The economically unshackled understand that the entire concept of “good debt” is PR fluff promoted by big banks. The financially free don’t squander money on debt service. If they do owe money, their singular drive is to pay off the balance and be rid of it.

If you really want financial freedom, that’s what it takes. Sometimes it’s not fun and I never said it would be easy. But the day you reach that level, the day that you realize the prospect of getting laid off is not all that terrible, it’ll be worth every bit of that effort.

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