MBA, BSc, DipFP
Financial Planner / Managing Partner
What is Financial Freedom?
In our last article we talked about financial literacy and its importance. One of the key benefits afforded by financial literacy is financial freedom. But what exactly do we mean by this, and how do you go about achieving it?
The Difference Between Financial Independence & Financial Freedom
Whilst these terms are often used interchangeably, they are actually two different things, although they are interdependent.
When you have financial independence, you have sufficient income to cover your expenses for the rest of your life, without having to work or be dependent on others. In essence, financial independence is about a dollar amount.
Financial freedom is more like a state of mind. It’s about being in control of your finances as they relate to your life choices, without a dollar amount being the primary consideration. This will look different for everyone. For some, it may mean having sufficient funds to work part time, for others it will be having no debts. For still others it is about not living paycheque to paycheque. Financial freedom is being in a place where you don’t feel you have to constantly worry about money, where you have peace of mind around your financial situation.
The Ladder To Financial Freedom
You can think of financial freedom as a ladder. You may start out aiming to be on the first rung, and once you achieve that you’re happy. Or you may wish to keep climbing. The rungs of a ladder will look slightly different for everyone, but will generally go something like this:
- You don’t live paycheque to paycheque – you have a small amount put aside for emergencies
- You are debt free – your mortgage is paid off, you own your car, so that any income is essentially disposable
- You have sufficient funds to take a sabbatical from work if you choose to
- You are able to work part time and still meet your lifestyle expenses
- You no longer have to work because you have sufficient funds to meet your lifestyle expenses through passive income
Only you can decide which rung of the ladder represents a feeling of freedom, or not having to worry about money, for you.
Does Financial Independence Lead To Financial Freedom?
It can be a bit of a chicken and egg situation. Financial independence can lead to a sense of financial freedom, but until you have an understanding of what financial freedom looks like to you, you can’t know how much money you need.
Once you have determined your idea of financial freedom, it’s easier to work out how much money you really need. Does financial freedom mean taking a job you love at a lower rate of pay because it aligns better with your values? Does it mean getting out of the rat-race and slowing your pace of life with a sea or tree change? Or are you energised by the drive to improve your financial position and gain financial independence as soon as possible?
With that in mind, working out how to achieve financial independence becomes easier. Our article 9 Tips for Achieving Financial Independence can help get you started.
If you would like to work towards your own financial freedom, Manly Financial Services has the experience and expertise to help you on your way. Give us a call on 02 9976 3388 or contact us via the below link.Interested in knowing more?