A sports psychologist taught me that people stress or have anxiety because they are either unprepared for something or they don’t have the appropriate knowledge about a subject. I took knowledge years ago and applied it to money so I could achieve financial freedom.
In this article, I’m going to share with you what financial freedom is, what it’s not, and show you how to achieve financial freedom.
What Is Financial Freedom & What It Isn’t
First and foremost, financial freedom and how to achieve it is much different than financial independence. Financial freedom is a real thing, financial independence is a myth.
The key is to realize that financial freedom is not a magic number like “I need $1,000,000 to retire.” Instead it’s a combination of behavior, mindset, and knowledge about money.
Financial freedom is being able to make financial decisions without stressing or having anxiety about it. In short, it means you have money compliment your life not dictate it.
In addition, you should be able to make money decisions quickly and easily so you can get back to what really matters in life like loved ones, your hobbies, etc.
Below I’ll discuss how to achieve financial freedom. One big key to remember, you control everything about financial freedom, i.e. it’s up to you if you achieve, no one else!
Have A System That Makes Life Simple
People have a hard time achieving financial freedom because their financial lives are chaotic. Having a system or the correct way of thinking about money transforms that chaos into order and reduces your anxiety drastically.
A good system allows you to do three things:
- Understand where you are at today and what your goals are
- Build a plan and compare your options to achieve those goals
- Be able to implement your plan and make edits/changes quickly as needed
Most technologies available today do some of these things but not all 3. Therefore, you have to mix and match services and technology.
For example, some people go to a financial advisor to create an initial financial plan but have to pay hundreds of dollars to make simple edits to their initial plan. For most people, that is just no affordable long term.
Excel and Budgeting Apps
Another example is that you have a budgeting app that does a good job tracking your expenses. However, it doesn’t tell you anything about your financial plan and how to allocate your funds.
Another problem with budgeting apps or a good ol’ Excel file is that you typically end up with just a long list of expenses: you’re basically taking the chaos out of your head and move that chaos on the computer or your phone.
To get rid of that chaos once and for all, FitBUX breaks down financial planning into three easy-to-understand categories:
- Money I’m using today
- Money I have and will grow to take care of my future self
- Money I am going to need and use to protect my finances
At the end of the day, you have choices but the key to achieving financial freedom is having money complement your life and not dictate.
Reducing money-related stress is key and having a system allows you to do that.
What Is Important
The following story illustrates how most people waste their time when it comes to money. It summarizes how they may think they are making a wise decision but ultimately end up doing next to nothing when it comes to achieving financial freedom.
One of my professors in college once told me, “People will get sick and go to the local pharmacy. They will then spend 15 minutes contemplating the name brand drug vs the generic brand all in the name of saving a dollar. However, their financial planner can email them to schedule a 15 minute appointment and they don’t have the time or won’t make the time. It logically doesn’t make since.”
When it comes to financial freedom, this is how people waste time and don’t focus on things that truly, truly matter.
The first step most people will take is to budget. However, they tend to do so blindly.
They write down everything in one long sheet or they put it in an app that doesn’t do anything except show them totals for this month vs. their budget. This causes people to wander aimlessly because they don’t know what they are looking at or they focus on unimportant things.
By unimportant things I mean people will focus on relatively small items that don’t move the needle in regards to wealth and financial freedom.
For example, they will focus on something they spend $50 a month on vs something they spend $750 a month such as taxes.
In short, people budget but they don’t have a reason for budgeting. You must budget with a purpose so you know what is important. You also must have a system for budgeting that makes it easy to understand and allows you to focus on what is important.
Focus
In short, people try to do too many things and spend too much time on things that don’t really matter in the grand scheme of things. Over time, it takes too long to accomplish their goals so they simply quit trying. This applies to all areas of life, not just achieving financial freedom by the way.
Study after study shows the more narrow you focus, the more likely you are to achieve what you’re doing and you will do it faster.
Therefore, when it comes to money, don’t try to pay off student loans, pay off credit cards, pay off mortgages, save in a 401k, save in a ROTH IRA, save in a 529 plan, etc…all at once.
Focus on two of those, maybe three at the most. Do them really well. Then once you have one accomplished, move to the next one.
This will allow you to hit goals faster and that since of achievement will give you a positive feeling…remember, achieving financial freedom is all about reducing your stress.
Hitting goals and having that since of accomplishment allows you to do just that!
By Joseph Reinke, CFA
