Having Financial Independence was a vital milestone in my life. After I attained it, I could have just given my notice and continued with my lifestyle. However, now there is something else on my mind. I want to achieve Financial Freedom as well.
The Basic Facts About Financial Freedom
I’ve realized that some people refer to financial freedom as a synonym for financial independence. However, those two terms are similar to me, yet there is a difference that sets them apart.
For me, financial independence means that I could quit my job now and live off my savings for the rest of my life. It might be a somewhat frugal lifestyle, but I would never run out of money.
It might sound impressive, but maybe you aren’t still convinced whether or not you want to keep your lifestyle the same. After all, interests and desires change over the years. The same thing happened to me as well.
I’ve come to understand that what I knew ten years ago, it doesn’t reflect my wants now. Furthermore, how can I know what my life will be in ten or thirty years?
Because of that, I still pick up my pager every time it wakes me up. I go to work, even though I know that the pager’s days are numbered. Why? It is because I want to achieve financial freedom. As soon as I think about it, everything calms down, and I feel confident. Soon, I’ll be able to retire without any regret. Also, I’ll be able to suffer through unexpected life blows without any trouble at all.
Advantages of having a financial freedom
Unlike Financial Independence, Financial Freedom allows you to change up your lifestyle if you get bored with it. For example, you can, without any regret, spend money on the overpriced internet on the plane. Or, you could always order your favorite thing off the menu. Maybe even hire the babysitter more often.
It also means that I could pay for things that are unexpected or things that I have no control over. For example, my apartment could get flooded. The tax laws may change, and suddenly I have to pay more every year. Therefore, financial freedom is a must, and it will help me get through these events with a smile on my face.
How much money should you have?
Let’s say that core expenses for my family are about $70,000. For Financial Independence, that means that I should save that much every year – for 25 years.
It would allow me to maintain my cushy lifestyle perfectly. However, there are the fluff costs – discretionary expenses. So, out of those $70,000, maybe $30,000 are certain treats. By maintaining that number, you’ll get FI.
But, what if you doubled the fluff expenses? It would allow you to spend more money on holidays, restaurants, babysitter, hot tubs. If you double those costs and add the core ones, it would add up to $100,000. In 25 years, that’s $2.5 million – and that’s how much my Financial Freedom is worth.
Stay on the safe side
Just because you’ll be saving that much money, it doesn’t mean that you should spend it whenever you want. It is a cushion that allows you to decide whether or not it’s the right moment to spend it.
By having that extra money, you are allowing yourself to say Yes or No to things. But, some of them will always stay a Treat or only for special occasions.
Nonetheless, when I reach my Financial Freedom, I could retire and say Yes to things that feel right – things that are worth the money.
Avoid spending too much
If you also strive to achieve Financial Freedom, you have to decide how you’ll use that extra cash. If you just double the discretionary expenses and spend it all, then you will fall into the Financial Independence category.
Baby steps first. Order that dessert, or tip well. Go to events that require you to pay the admission. Have real-world experiences that are worth the money. But, use the rest of it for insurance.
Pay insurance for your family, your home and your cars. That way, your FF will protect you from unforeseen expenses and lifestyle changes.
Sometimes, even maintaining your lifestyle can get expensive. Just look at the health insurance situation. Therefore, it is crucial to ensure yourself against all unpredictable transitions that might happen.