Financial Freedom: The Simple Formula To Reach This Goal

There is no doubt most of you reading this are quite familiar with the term financial freedom. It’s a goal I’m actively pursuing and something most would like to achieve in their lifetime.

We’ve also all have experienced an unexpected and expensive bill, whether that is a medical emergency, car repair, etc. It can set you into panic mode, especially when you might be struggling already to pay your other bills.

I’ve been there a few times.

But if we were to all fully aim to achieve financial freedom, those unexpected expenses would be less worrisome. Sounds nice, right?

Financial freedom is not something that will happen overnight, but there are simple steps that can get you there sooner than you think!

What is Financial Freedom?

Financial freedom means that you have enough money saved and invested, that you can afford to live the life you want, on your terms. If you want to retire early, travel the world, pursue your own endeavors, or be completely stress-free when it comes to finances — mastering your money is key.

Your goal with financial freedom is to be prepared for the unexpected and not feel attached to a paycheck from your job.

Recessions can (and will) happen, along with unusual events like the pandemic of 2020 that wreaked havoc on businesses and jobs.

But when you obtain financial freedom, you won’t have to rely on the government or finding a job to ensure you and your family’s livelihood is intact.

That is a huge sense of relief and heavy burden lifted from you — that’s what financial freedom is about!

But the idea of becoming financially free should also be about living your best life and having all your needs met, without relying on any job to ensure you are financially stable.

What Does Financial Freedom Mean to You?

If you are reading this article, then financial independence and freedom is clearly important to you or the idea of it gets you motivated. And that’s a good thing! 

You are taking a step that unfortunately many people only dream about or don’t even worry about at all! There is certainly more to life than being rich and wealthy, but having financial freedom ensures you live the life you want. 

So what does financial freedom mean to you? I think it’s an important question to ask yourself before you begin to pursue financial changes. 

Maybe to you it means:

  • Choosing a career you love or starting your own business
  • Ability to go on family vacations without breaking the bank
  • Being able to pay cash for expensive items without racking up debt
  • Having FU Money to do as you please without hurting your budget
  • Retiring early before the traditional ages and living how you want

Remember, personal finances are PERSONAL. And so are your choices for wanting to pursue financial freedom. Surely there will be some overlap to the above, but you may have your own reasons. 

For me, pursuing financial freedom meant: 

  • Less stress and worry about finances
  • The freedom to choose what time to wake up (no alarms!) or when to work
  • The ability to travel and take a vacation without racking up credit card debt to pay for it
  • Getting to spend more time with family and friends, instead of constantly chasing a paycheck to cover expenses
  • If I lose my job, can I cover the expenses for a while?
  • Being able to start a passion project, help others, etc.
Financial Freedom

How Do You Reach Financial Freedom?

There are no secrets to achieving financial freedom and the process is straightforward. But if you are unsure where to begin, these are the important habits and steps to get you there. 

You might reach this level faster pending on how aggressive you want to be with your income, budget, frugality, debt payoff, and investments. And remember, don’t compare yourself to others, stay focused on your progress. 

Steps to help you achieve financial freedom: 

1. Accept responsibility

If you want to fully change your financial future and become independent, you need to accept responsibility. Own up to your financial mistakes and understand your money decisions greatly affect your wealth in the future.

It’s completely okay to make mistakes or not be financially savvy, but take charge and own up to it all. This will greatly impact your financial IQ and mindset to reach your goals.

2. Learn how to manage money

If you don’t understand where your money is going or how to control your spending, you’ll find that financial freedom will not be possible.

The challenge is, a lot of people let money control them and it can spiral out of control — quickly.

Take charge and don’t be afraid to face the numbers.

  • Track your net worth with Personal Capital. It’s free and trusted by millions of people to keep track of their net worth, personal spending, and any investments.
  • Know how much money you bring in and how much goes out. You can catch a lot of overspending and start to make cuts to get more money back in your pocket.
  • Develop a budget to help you stay on track and adjust as need over time. You should be spending about an hour each week with your budget. It’s your new best friend.

3. Pay your dues and debts

Nothing holds down your wealth accumulation and financial freedom goals more than debt. The debt that comes with student loans, mortgages, credit cards, etc.

Not all debt is created equally, as some will have lower interest rates and may not impact your finances as much.

But credit cards and even student loans can cause you to struggle financially. High-interest debt or loans with thousands of dollars can cause you to be stuck for years and spend way more money covering interest, instead of saving or investing. 

This means you need a debt pay-off plan and focus on getting more aggressive with any debt you do have.

4. Set financial goals

Besides learning to manage your money, you want to set financial goals for yourself. Otherwise, what are you actually trying to achieve?

If you do not have any goals to reach, why would you stick to your plan for financial freedom? If you reach one of your goals, set a new one and keep going.

Initially, my financial goals were to have enough money to not worry about an unexpected expense and retire early by 45. So I had reached my first goal, I started a new one which was to hit $100,000 in savings.

I also changed my views on early retirement, so that is no longer a goal of mine. But creating goals keeps me on my game and having goals can help you work harder on your finances too.

5. Pay yourself first

One of the key steps towards financial freedom was practicing paying yourself first. You’ll see me mention this often in other posts, but it’s so important and was a great mindset shift for me.

Typically, when we get our paychecks or money we focus on paying our bills or other expenses first.

While you want to pay these on time, what happens?

You pay these bills, then need money for groceries and gas, and then what’s left? Sometimes you might use that leftover for entertainment or buy something for your home or apartment.

But your savings and retirement gets neglected.

Instead after budgeting, immediately move a percentage to your savings first. And stick to that rhythm.

6. Live below your means

If you want to obtain a life of financial independence and freedom, you need to live below your means.

It’s a challenge for a lot of people, but also a number one reason most people are broke or have little savings. We want to keep up with our peers, have the latest car, upgrade the size of our house/apartment, etc.

All these things put a strain on your financial goals. Stop worrying about what others have or trying to upgrade to the next best thing.

Stay within your means and your pockets will thank you.

7. Invest your money

You want to build an emergency fund and have cash reserves, but to obtain financial freedom means you’ll need to invest. With low-interest rates on savings accounts and rising inflation, investing your money is the best way to compound your wealth over time.

Retirement investing:

Whether you want to retire early or not, investing into retirement accounts is one of the best financial moves you can make. These are tax-efficient accounts where you can invest in the stock market, like index funds or ETFs.

A 401k or 403b are great places to start, but you have other options like an IRA or Roth IRA as well. Make your investments simple and continue to invest as much as possible.

Taxable investments:

If you are debt-free, have a solid emergency fund, and are investing as much as possible in retirement accounts — you might want to invest in taxable accounts to. This would be your traditional brokerage you open, which can also help compound your money.

Just remember you will pay taxes on this money as it is not sheltered like retirement accounts.

Real estate investments:

There are many debates about your home being an investment or not, but if you pick the right area and finance right, it can be worth much more money years later. But beyond that, investing in real estate rental properties can help you achieve financial freedom too.

Before you dive in, you can try investing in REITs (Real Estate Investment Trusts) or even real estate crowdfunding, like with Fundrise or Diversyfund. Less money upfront and helps you diversify your money more.

8. Work on your credit

When trying to achieve financial freedom it’s easy to focus on money, investments, etc. But you can’t forget about monitoring your credit!

Your credit score can impact how much interest you pay on future loans, if you’ll easily be approved for various things, and even other miscellaneous life needs.

When your credit reports suffer, it can make financial freedom a bit more difficult for you. And monitoring also protects you from identity theft, which can be a nightmare to clean up — costing you time and money.

Monitor your personal credit for free with Credit Karma or Credit Sesame.

9. Take care of your stuff

One tip you might not think about as important to financial freedom is keeping good maintenance on your possessions. Household items, cars, clothing, etc.

When you take the time to follow proper maintenance and taking care of things, you’ll have to spend less money in the long-run. Now you can keep more money in your emergency fund and put more towards investments!

How great would it be to keep your care for 15+ years with new major issues? How to maximize your water heater in your home? It might not be glamorous, but this step is important.

10. ABL – Always Be Learning

You might have heard of ABC for sales – Always Be Closing. Well, we can play on that with ABL – Always Be Learning.

If you want to reach financial freedom and live your best life, you need to keep learning.

It doesn’t matter if you become a financial master in your lifetime, continue to read personal finance books money blogs to help you gain further insight.

There is always something new or another perspective about money that may help you achieve your goals.

I’m constantly reading new blog posts from some of my favorite sites and I re-read books I’ve already completed. So many times new nuggets of information were overlooked.

Never stop learning!

How Much Money Do I need For Financial Freedom?

For you to reach a true state of financial freedom, generally the accepted amount of money you need to have is 25x your annual spending. Your number may vary based on your cost of living and how you plan on using the money. For example, if you spend $55,000 a year, you would need $1,375,000 to achieve financial freedom. 

This also means that you can follow the popular and standard investment withdrawal rate of 4% when you retire. 

Now does this mean you need 25x your annual spending to say you are financially free? Not really, because there are various levels of financial freedom in my opinion. 

You can be on the lower end where you couldn’t retire early, but you are building a nice nest egg and have built your emergency fund that you could live off for maybe a year or two if you lost your source of income. 

While you aren’t entirely financially free for the rest of your life, you have retained a sense of freedom for a short period of time. Naturally, your goal should be to keep going but I think any progress is giving you temporary freedom to remove stress or pursue other endeavors.

How to Achieve Financial Freedom Fast

Achieving financial freedom is not something that happens overnight for the majority of people. Sure, you can inherit a ton of money, and then you’re financially free.

But for the majority of people, achieving financial freedom fast is just not possible. I think it’s important that taking any shortcuts or hoping to get rich quick for financial freedom is the wrong mindset to have.

It takes time, being consistent, and looking for ways to earn and invest more aggressively. That can certainly improve your timeline to financial freedom, but you never know what life will bring you and what setbacks you might face.

The best thing you can do is figure out why you want to achieve financial freedom, put a plan together, and work smarter with your money.

Soon enough you’ll see that financial freedom is not just about money, but about living your best life.