What is financial freedom & the steps to financial freedom?

Ravi Kurani
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Everyone dreams of financial freedom.

But according to recent survey data from Personal Capital, most Americans feel they would need an average of $500,000 to feel financially secure, let alone free.

This number can seem daunting. But that doesn’t mean it’s impossible to achieve.

When you retire your debts, invest in assets, and focus on long-term growth, you can build up enough wealth that you’re free to pursue whatever dreams or aspirations you have.

That’s what financial freedom is all about. And here are our tips to achieve it.

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What is Financial Freedom?

Financial freedom means that you can live the life you want and pursue the dreams you’ve wanted to pursue without having to worry about the price tag.

This will vary from person to person, but here are some examples:

  • Choosing a career you love without worrying about money
  • Taking expensive vacations every year without breaking the bank
  • Giving generously to people in your life and causes you care about
  • Retiring decades earlier than your peers (or even your parents)
  • Being able to sleep at night without waking up worrying about a financial crisis

A lot of people confuse financial freedom with financial independence, or even financial security. In reality, these are three separate levels of financial success, each one more difficult to achieve than the previous. Let’s take a close look at each one.

Financial Security

Generally, financial security can boil down to one thing: if you lost or quit your job today, would you still have enough income to cover your basic living expenses?

This means having an emergency fund to cover you until you get a new job, additional sources of income to take care of your basic needs, etc. While financial security is an important, first rung on the ladder to financial freedom, it’s not even close to financial freedom.

Financial Independence

Financial independence takes this idea to the next level: do you have enough passive income to cover your current lifestyle?

Passive income is only possible through investments. You need to build multiple streams of income, preferably ones where you don’t have to spend much time day-to-day. This can include stocks, mutual funds, retirement accounts or other assets like real estate.

Financial Freedom

While financial independence is a great place to be, there’s still one step further: do you have enough passive income to cover everything you’ve always dreamed of?

This could mean flying first class every time you travel, taking expensive vacations every year, buying great gifts for your family, and more. If you’re truly able to say “money is no object,” that’s financial freedom.

The key to achieving financial freedom requires that you start building up assets while you’re young and allow them to grow over time.

How to Achieve Financial Freedom

While financial freedom may seem like a pipe dream, it’s actually much simpler to attain than you realize. But simple doesn’t mean easy.

It requires living a consistent, disciplined lifestyle, devoting your resources to building assets. Then, as those assets grow and generate passive income, you can start to spend more money on the things you love.

Here are the basic, practical steps most people take on the road to financial freedom:

  • Define your financial goals, including how much you want to have saved by a certain date
  • Set a (and stick to) a budget, devoting as much of your spare income as possible to asset-building
  • Build multiple streams of income, including working a side hustle (or two) until you start building assets, and making sure you get your employer match for your 401(k)
  • Pay off your debts; your bills are potential money that should be going toward your assets
  • Save money. Start with an emergency fund of 6-8 months of expenses, then start throwing money into assets.
  • Keep a diverse portfolio, including tax-sheltered retirement accounts (401(k), IRA, etc.), taxable investments, real estate, etc.
  • Monitor your credit score, as this can impact more than your ability to borrow money

Investing: The Key to Financial Freedom

Since investing is the key to achieving financial freedom, it’s important to walk through the types of investments you should pursue. Keep in mind that you should find a financial advisor who can guide you through the best options for your age, income, risk tolerance, etc.

Retirement Savings

One of the best places to start is with retirement savings. There are a number of reasons why this is the case.

For starters, most retirement accounts are tax-favored, like your 401(k) or 403(b). You can invest your money pre-tax, deduct the amount you invest from your taxable income, and pay taxes later when you retire.

You can also invest in a Roth 401(k) or Individual Retirement Account (IRA), where you pay taxes now, but allow the money to grow tax-free. This is a good option if you anticipate your taxes increasing as you near retirement age.

Another reason to invest in retirement is that most employers offer a match to your 401(k) investments up to a certain amount. For instance, if your employer offers a 5% match, you could invest 5% and add their contribution, making your total contribution 10% of your income. That’s free money you don’t want to leave on the table!

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Real Estate Investments

In addition to retirement accounts, owning your home or other real estate can be a key part of achieving financial freedom. If you buy a home that’s a good investment, it will grow in value as time goes on.

The key to real estate is to not borrow more money than you can afford to pay off, and try and pay it off early. If you can pay a 30-year mortgage in 15 or even 10 years, that’s decades of money you’ve freed up to other uses.

Other Investments

Once you’ve maxed out your retirement investments, you should consider the wide range of investment options: stocks, mutual funds, business investments, and even cryptocurrency like Bitcoin. At this stage, you should definitely consult with a financial advisor to figure out the best approach, particularly one that provides a minimal tax burden (trust us, you’ll definitely save more money than you spend on an advisor).

Final Thoughts: Why Do You Want Financial Freedom?

One of the most difficult parts of achieving financial freedom is staying the course. This is a long-term exercise, not a get-rich-quick scheme.

That’s why it’s so important for you to visualize why you want financial freedom. Do you want to live in an expensive part of town, or do you want to travel the world and stay at luxury resorts? Do you want to give generously to causes you care about, or do you want to

There’s no right or wrong answer. All that matters is figuring out what’s important to you, and using that as your guiding light throughout your financial freedom journey.

A key component of achieving financial freedom is investing as much as possible. Matchly enables you to secure your employer match to your 401(k) so you don’t leave that free money on the table. Click here to learn more.

How Matchly can help you achieve financial freedom

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