I often speak with people who aspire to achieve financial freedom, however there is often some confusion as they believe it is purely about creating residual income. In todays video I discuss how financial freedom is achieved and maintained.
What is financial freedom?
A lot of people actually talk about financial freedom, and it is one of the key aspirations that people are always aiming for. People want to achieve financial freedom. A lot of people are always talking about it. But quite often what I find is even when people are talking about financial freedom, most of them still don’t really understand what it is. So the interesting thing about financial freedom is you can get some of the poorest people in the world who are financially free, but you can also get some of the richest people in the world who don’t have financial freedom. And there’s a paradox in there, but to really explain it, what I need to do is talk about what financial freedom is.
So financial freedom is achieving a gap between your incomings and outgoings in terms of cash and in terms of money. So your outgoings could be your day-to-day living costs and your home and your car and your holidays. And your incomings could be your salary, or it could be the money your business makes you. And with financial freedom, people think you either have it or you don’t, but it’s actually a sliding scale. There’s different levels of financial freedom, and it is directly proportional to how big that gap is.
So earlier, when I said you can get millionaires out there in the world who don’t have financial freedom, it’s because they might be earning millions of pounds or have millions of pounds, but their lifestyle and their expenses have moved right up to that. And in some cases, they’ve even overtaken their actual incomings. So these millionaires then end up in a position where they’ve actually got more going out than coming in, and that’s why they don’t feel financially free. And some of the poorest people in the world might not be making much money, but because their lifestyles are proportionately frugal compared to the amount of money they’re not making, then they then have that financial freedom.
If all you’re going to do with that money, you’re going to just sink it into expanding your lifestyle, then you won’t achieve financial freedom in the way you want.
What I’d always say, though, is people who have financial freedom still have very good lifestyles, but what they do is they think carefully about the value that they’re generating from those expenses. So ultimately, sometimes doubling what you’re willing to pay for that bottle of wine or for that house doesn’t necessarily double your satisfaction from it. And the people out there who are financially free have a really, really good understanding of that. What is a suitable increase in spending on my lifestyle? And what am I going to gain from it?