The term “Financial Freedom” often gets misunderstood. The most common misunderstanding about financial freedom is that the bigger the salary one makes the more financially secure, or free, one is.
While earning a good salary is good enough to live a fruitful life and potentially reduce or even eliminate debt, it is NOT what financial freedom really means. And the biggest reason is because of the word “salary”. A salary is the furthest thing away from financial freedom. The biggest misconception nowadays is how much money someone makes. And this is ALWAYS related to salary. The bigger the salary the more financially stable, or free, someone is. This misconception is unfortunately the way most people think and it has become a way of life, the normal mindset. The bigger the title, the bigger the salary, the bigger the status, the more stable or free someone is. But any which way you put it, having a big title or a big salary is absolutely NOT what financial freedom is. It actually is the complete opposite.
Why is a salary the main reason for the misconception about financial freedom? It is because a salary is what someone makes for being an employee in a company. In other words, for having a job. An employee simply trades their time to an employer for money. As long as the employee is willing to do this, the employer is happy to give the money. So the harder an employee works, the more money they make in raises, promotions, bonuses and so forth. However, in return of these raises, promotions, bonuses and so forth, an employer expects the employee to accept more responsibilities and more work. Usually these new responsibilities and more work turns into longer working days and weeks. This relates to less personal time for the employee as they need to work more. And the vicious cycle continues as the employee gets raises, promotions, bonuses and so forth year after year. The salary of the employee keeps on rising as the title and responsibilities become bigger and bigger. When the salary rises, the employee has a sense of self-worth and is proud of the money they are making and they decide to buy things like homes, cars, or go on expensive vacations. Because their salary is large enough to pay for their living expenses and maybe even enough to put away for their savings and investments such as RRSPs or mutual funds, they believe they are succeeding so much in life that they consider themselves financially free. Unfortunately this is often the misconception of financial freedom.
Why the misconception? It is because the employee, as well as they are doing in their job at their company and making a good salary, is simply trading their time for money. This means that if they stop being an employee for whatever reason, like quitting or being laid-off or being fired for example, the money stops coming in. They stop giving the employer their time, the employer stops giving them money. Therefore, the person who relies on a salary is not really free to do what they want because if they do, the money stops coming in and they cannot pay for their living expenses as well as their big cars or homes or vacations. Now you can see that having a big salary is not what financial freedom really means because you need to keep working to keep the money coming in and keep up with the expenses. The whole idea of financial freedom is the ability of not having to rely on a job to pay for your expenses. That if you stopped working you can still pay for your living expenses and whatever else you desire.
There are different ways to financial freedom of course. For example, there are paper assets, where the dividends are enough to live off of. Another example would be saving and investing enough money during your working years that once you stop working you can live off of the interest and returns. For me, financial freedom came in the form of real estate, where the rents from my rental properties generate more than enough cashflow to pay for my rental property expenses and my living expenses. Whatever vehicle is used to get to financial freedom, they all have the same thing in common, and that is to generate enough cashflow to pay for someone’s living expenses regardless of the existence of a job. You see, the cashflow generated through investments, such as real estate for example, is money coming into your pocket whether you work or not. Get that cashflow to a level where it pays not only for the building’s operational expenses, but it also pays for your living expenses, and you have made it to financial freedom.
Now, there are some people who are brave enough to start their own businesses and work for themselves as they do not want to be employees and work for someone else. That is very good and all but this is NOT financial freedom as the business is run and operated by the business owner. If the business owner stops working the business does not bring in any money. The only way a business gets the business owner to financial freedom is if the business grows big enough to have employees run the business for the owner. This type of business is usually a big business as there are levels of employment such as CEOs, VPs, managers, etc., that run the company regardless of if the business owner is actively involved in the company or not. And this is totally possible, although much work is needed to get to that level. But again, many people have done it and if you are strong enough to take this on I applaud you and wish you luck in your journey.
So, what does financial freedom really mean? It means being able to live without the need of having a job. It means having the necessary cashflow from your investments to pay your living expenses whether you work or not. The only way to financial freedom is having your money work for you instead of you working for money. This essentially means investing in vehicles that generate cashflow. Now, investments do not usually start off by generating enough cashflow to live on, but through hard work and discipline, the cashflow gets better through the years and eventually gets to a point where you can live off it. Then it is your decision if you want to keep working at your job or not. This is the true meaning of financial freedom!
Don’t work to live. Work to build your cashflow towards financial freedom so you can live!
The Freedom Spinner