With one in three Americans having less than $5,000 saved for retirement, there is a major confusion in America, and globally, with the misunderstanding of wealth.
People look around at their nice home with lots of furniture, garage space and their 2018 electric car and believe this is evidence of living wealthy life.
When you have financial freedom as a core goal of yours, you soon realise these assets aren’t really a factor in your wealth – money is. Money that you have saved, kept safe, invested, earn interest from, and for the most part, is liquid.
The reality is, much of the those assets and possessions are worth much less than they paid for them. A brand new car loses about 20% of its value when you drive it out of the garage.
Financial freedom is likely to be desired by all of us, whether you are aware of it or not. Not being dependent on employment to pay your bills is of course a great goal to have, so we can work on what truly fulfills us.
When we chose to take this goal of, say, attempting to build up enough wealth to live from at an early retirement age, we are suddenly confronted with these misunderstandings. Saved money is the best reflection of wealth, not possessions.
What are the steps to financial freedom?
Financial freedom has various meanings depending on who you ask. For me, it is building up enough wealth, that the dividends and interest earned is enough to not be forced to work.
This means I can do the things I enjoy, have freedom over my own time, and work on projects that I truly find fulfilling.
I have my own 7 step plan to achieve financial freedom. Without detailing each step, the idea is to first and foremost have a small emergency fund. Paying off high-interest loans comes after, and then topping up my emergency fund to equal around 2 months of expenses.
Then other debts, and finally mortgage will be paid off, which will be necessary to increase my savings and investments in order to hit my retirement target wealth – around 25 times my yearly spending.
The order of these are important, because we need to stop paying interest in order to earn interest. But whilst the plan is necessary, it all comes down to having the right mindset.
Being financially literate and having a plan is only a small part of financial freedom. The most necessary thing is to have a rich mindset.
Having a rich mindset is to believe that you create your life, and you choose your own path. You truly believe in yourself, and truly believe you are making you dreams a reality.
Being born economically disadvantaged is going to mean you have to work harder, for sure. But this should only fuel a rich mindset of taking back the power in your life, rather than believing that you are only a passenger to how life will play out.
This means that you can’t separate the steps to financial freedom from your everyday life. You have to become rich in your mind before you actually become financially free.
Everyday, on your Sunday off or your difficult Monday morning wake up, you need to reaffirm this mindset and carry it with you through the day. It will help you make the correct decisions in your mind, to be rational and ambitious, and provide you with the motivation to carry them out.
It is all these small decisions and behaviours we carry out each day that will land you a promotion, or accumulate to a huge yearly saving just from your frugal grocery shopping. It all adds up. And that is at the core of financial freedom. A process of being your best self, earning what you deserve, taking control of your own decisions and achieving the reward of an early retirement.