What is financial freedom?
True financial freedom is the feeling of being without financial stress.With financial freedom, you have the independence to live stress-free. If an issue comes up, you don’t even bat an eye because you are secure in your finances to pay for the fix. Nothing impacts your finances. You know exactly what you can spend, are free to do what you want, when you want and without worrying about financial consequences.
Levels of Financial Freedom
We all dream of retiring debt-free. We want to spend our retirement relaxing and reaping the benefits of our hard-earned income. For some, this dream seems unattainable. But what exactly does financial freedom look like? We can break it up into three levels:
No financial freedom: At this stage, you rely completely on your paycheck to cover spending and pay debts. It’s difficult to save money at this stage since you need every cent you make. Until you make more income, you remain in this stage. Getting out requires hard work and time.
Temporary financial freedom: This stage requires a pool of savings. You must make more than you spend to remain in this stage. This isn’t restricted to raises and bonuses at work. You might get another job. You can even begin your own business or side hustle. Creating another income channel adds to your savings.
More savings means more freedom. With this freedom, you can switch jobs, get more education, or even travel. These freedoms are only temporary, however. This is because you are using your savings to purchase these. This temporary freedom only lasts until your income is spent.
Permanent financial freedom: In this stage, you have an iron clad written financial plan,where your non-employment income greatly exceeds your spending. This non-employment income may come from the hardships you have gone through smartly in past or a side business you enjoy.