by Mal Keenan
So, what does financial freedom mean to you?
Most working people dream of this thing called financial freedom. It certainly sounds like something we'd all want. But have you ever stopped to really think about what it means? It can mean different things to different people, so before you spend time looking for it, maybe it's worthwhile to examine what the concept really means to you.
After all, it's hard to find something if you don't know exactly what it is!
Time and money are inversely related. This means that in most cases, one can be traded for the other. And if you think of how that applies both to your everyday life and to the way business is conducted, it's true. For example, you can spend your own time cleaning your house or mowing your lawn, or pay someone to do it for you, and free up the time for yourself. You can spend time researching on your own, or you can pay some money for someone else's specialized knowledge in that same field.
With that idea in mind, financial freedom may be defined broadly as reaching the point where you no longer have to trade your time for money in order to provide for what you want in life. There are two key phrases in that idea - "no longer have to trade" and "what you want". These are what you have to define for yourself, in order to determine what financial freedom means to you.
To many, financial freedom means just not having to work for a living. They dream of stepping off the treadmill of going to work everyday to pay the bills. Some may want to escape the stresses of the job itself, unpleasant working conditions, commuting, boredom, and so on. Others may just value more time to be with their families and pursue their own interests. For most people, it's some combination of those.
But some people will want to continue to work, even after they've reached a state of financial freedom. They may already have a job they find personally rewarding, or they may be able to switch to another job which they love. If they're financially free, the income they receive from a job doesn't matter as much. Still others may want to run their own business. Financial freedom, for these people, means they don't "have to trade" their time for money, but they may choose to do so.
The other important factor in finding financial freedom for yourself is that of your current and future lifestyle. Some people prefer a very modest home, car, vacations, and possessions, and will always want to live that way. Starting from the same point, these people will be able to reach a level of financial freedom sooner than those who aspire to more elegant surroundings.
To reach financial freedom, you will have to decide on your own means of getting there. You may find you can reach that point on an income, most likely from your own business, from investment income, or from a combination. If you take the business income route, be sure to build something that will continue to provide income, even if you don't trade your time for it. Otherwise, you won't have reached that level as we've defined it here.
Ultimately, financial freedom is about control. Control over your own time and life, that will let you make the choices you want to make, rather than being forced to accept those offered by circumstance.
Friday, January 14, 2011
Monday, January 10, 2011
Go Debt Free
1. I will continually keep 6 to 12 months in a liquid emergency fund. Yes, I said 6 to 12 months. In today’s economy how long would it take YOU to find another job making what you’re making now? I’d rather err on the side of caution.
2. I will stay on budget and not allow myself to get crazy with the excess cash I’ll soon have left over every paycheck. This is where I failed last time.
3. I will divide my savings as follows:
Savings for college (I have three kids).
Savings for weddings (I have two girls).
Savings for a replacement vehicle. I have a company car and my wife has a minivan. It will probably last at least another 5+ years. It’s a Honda.
Savings for retirement. Currently my company makes a contribution to an ESOP plan for my retirement. It’s been 15% of gross salary on my W2 but the last two years has been 25%. The year before that it was 20%. This is a hard deal to beat. I contribute nothing (not allowed to by law) and the company puts money into my retirement account which has historically grown at a rate greater than the S&P 500. I plan to save an additional 15% to 25% over and above what’s in my ESOP.
Savings for other major purchases. If I need a new [ fill in the blank ] I will have the money to pay cash and will only pay cash.
4. I will employ all the lessons of frugality I possibly can…within reason. I don’t plan on going hunting for my food (yet), I don’t plan on getting a milk cow or some chickens, nor do I plan on spinning my own yarn. Gardening, sure, but I’ll leave the homemade laundry detergent to some others!
5. I will learn to negotiate a better deal on everything. Negotiation is an art form that anyone can learn. Employing a little bit of haggling can put a little more money in my pocket!
6. I will learn some good old fashioned self control. How’s that for a revolutionary tip? Control your desires and how you act on them and you can control your own destiny. Self control is the key to making it. Master yourself and you can then master anything.
7. The most important tip is to…drum roll please…PLAN. We are too “seat of the pants” in this country. We plan for the next week, maybe the next quarter, but rarely do we REALLY plan further out than that. We “want to keep our options open” and we fear being tied down to some strict budget. But planning and budgeting is more about controlling your money than about restricting your fun. Planning lets you enjoy the fun of dressing up in shabby clothes, popping in the Billy-Bob teeth, and buying a car with all cash from a surprised salesperson. Wouldn’t that be fun? How about telling the furniture salesperson that you don’t need financing and that you’d like a 25% discount…heck, make it 35% since you’re paying cash. Or maybe just that deep secure feeling that you don’t owe anyone anything? That’s what I’m talking ’bout.
2. I will stay on budget and not allow myself to get crazy with the excess cash I’ll soon have left over every paycheck. This is where I failed last time.
3. I will divide my savings as follows:
Savings for college (I have three kids).
Savings for weddings (I have two girls).
Savings for a replacement vehicle. I have a company car and my wife has a minivan. It will probably last at least another 5+ years. It’s a Honda.
Savings for retirement. Currently my company makes a contribution to an ESOP plan for my retirement. It’s been 15% of gross salary on my W2 but the last two years has been 25%. The year before that it was 20%. This is a hard deal to beat. I contribute nothing (not allowed to by law) and the company puts money into my retirement account which has historically grown at a rate greater than the S&P 500. I plan to save an additional 15% to 25% over and above what’s in my ESOP.
Savings for other major purchases. If I need a new [ fill in the blank ] I will have the money to pay cash and will only pay cash.
4. I will employ all the lessons of frugality I possibly can…within reason. I don’t plan on going hunting for my food (yet), I don’t plan on getting a milk cow or some chickens, nor do I plan on spinning my own yarn. Gardening, sure, but I’ll leave the homemade laundry detergent to some others!
5. I will learn to negotiate a better deal on everything. Negotiation is an art form that anyone can learn. Employing a little bit of haggling can put a little more money in my pocket!
6. I will learn some good old fashioned self control. How’s that for a revolutionary tip? Control your desires and how you act on them and you can control your own destiny. Self control is the key to making it. Master yourself and you can then master anything.
7. The most important tip is to…drum roll please…PLAN. We are too “seat of the pants” in this country. We plan for the next week, maybe the next quarter, but rarely do we REALLY plan further out than that. We “want to keep our options open” and we fear being tied down to some strict budget. But planning and budgeting is more about controlling your money than about restricting your fun. Planning lets you enjoy the fun of dressing up in shabby clothes, popping in the Billy-Bob teeth, and buying a car with all cash from a surprised salesperson. Wouldn’t that be fun? How about telling the furniture salesperson that you don’t need financing and that you’d like a 25% discount…heck, make it 35% since you’re paying cash. Or maybe just that deep secure feeling that you don’t owe anyone anything? That’s what I’m talking ’bout.
Subscribe to:
Posts (Atom)