I am on a journey to financial abundance. This includes setting expectations and achieving goals that bring more money into my life and bank accounts. As I researched money matters and how to get out of the cycle of living paycheck to paycheck, I learned about financial freedom. More importantly I redefined what financial freedom means to me.
I used to think that financial freedom was an impossible condition that required winning the lottery, but not anymore. Now it is a legitimate ambition that I expect to accomplish within the coming years. To do this, I needed to change my behavior. I had to understand where I was and how I got there. I read a number of books and I watched a plethora of YouTube videos. With my new found knowledge, I have come to think of people being in one of the following categories that I have defined below. These include Financial Slavery, Financial Independence and Financial Freedom. In order to help you figure out where you are today, I’ve defined each category and given suggestions which aid the transition into the next category.
Financial Slavery
This category is defined by individuals who live paycheck to paycheck, are regularly stressed by their financial situation and who are overwhelmed by debt. People get here by maintaining their necessities and acquiring material items on credit. They purchase things to improve their quality of life, but inadvertently erode their quality of life because it introduces debt burden. Debt burden is the fear of not being able to make your monthly payments. It is also associated with feelings of frustration that one needs to maintain a job to ensure that monthly payments are made, and also feelings of guilt and shame if payment obligations cannot be met. This keeps people in jobs they dislike, or causes them to begin disliking a job they previously enjoyed because they feel trapped.
In order to move to financial independence, your driving aim is to let go of financial stress and worry.
Three tips that will help you are…
1. Build a budget & pay yourself
- Live within your means! Understand what your monthly bills are and make sure they are less than what you make every month. If you have debt payments that push you over your income limit, contact your creditors and see if you can work out realistic payment plans – you’d be surprised how many companies are willing to do this. If they are unwilling to work with you, let them know your situation and stop taking their calls until you have the ability to pay. I do not advise walking away from your responsibilities but recapping your poor situation regularly will only make you miserable while you sort out your finances.
- Accumulate savings. In other words, pay yourself first. Not only are you worth it, but seeing your savings grow is uplifting. Make this a line item in your budget – most experts recommend 10% of your income, but do what you can. If that is $20 per paycheck, then that’s what it is. As your financial condition improves, so can the percentage you save.
- Own luxuries outright. Our society is very materialistic and that can be ok, but always buy luxuries because they make you feel good (not to keep up with the Jones’s) and with cash. If you do not need it, make a rule to save for it first and then buy it.
2. Attitude of gratitude
- Build a feeling of wealth by regularly acknowledging the many wonderful people, places, things and situations you have to be grateful for. Consider keeping a gratitude journal where you list things you appreciate or create a ritual of counting 5 blessing as you lay down for sleep each night. This will help you to see abundance and opportunities where you previously saw lack.
3. Symbols of abundance
- Continue to build the feeling of wealth within yourself. Do this by finding a few things that you associate with wealth and make them a part of your routine. For example, if you associate fresh flowers set on the dining room table or in the foyer to be something rich people do, start doing it. Make purchasing a Sunday bouquet one of your wealth rituals. Other examples include changing your manner of dress or keeping $100 in your wallet. These are wealth affirming habits and they make you feel good.
- Get rid of items that symbolize lack. This includes items of poor quality, that have no value to you, or are damaged. You may have obtained these things because you thought they were a good deal, but this affirms a belief that you are not worth full price.
Financial Independence
This category is defined by people who believe in working hard for what they have and are proud of their achievements. They live within their means, have followed the advice of financial consultants and are in the process of or have already paid off the majority of their debt, built emergency savings equivalent to six months’ worth of bills and established retirement savings plans. These people have accomplished a lot, but realize they are still trapped in a system. Even though they no longer have the discomfort and fear associated with living paycheck to paycheck, they know that they must continue working to sustain their lifestyle, and quite possibly this means staying with a job they have no interest in. Quality of life is improved but still not where they want it to be.
In order to move to financial freedom, your driving aim is to allow the flow of money.
Three tips to help you are…
1. Law of tithing
- Tithing is the giving of one-tenth of your income to charity. You don’t need to give 10%, but you should give something. As you become more abundant, the process of giving solidifies your perception of your improved financial state and offers metaphysical gains. The concept of “to give is to receive” can mean you receive by feeling good for what you have done, but it also encourages the flow of money. The more money that you direct out into the world (as opposed to hoarding like a tightwad), the more money will find ways to flow into your care.
2. Receive with gratitude
- Learn to accept money and gifts graciously, in other words, be open to receiving. A trap that many people fall into is the belief that you must work hard for what you have. Because of this belief, many individuals are uncomfortable accepting gifts and frequently turn down things as mundane as a cup of coffee. Try to change this behavior by accepting everything offered to you whether it be cookies in the break room, $20 dollars found on the ground or the winning lottery ticket.
3. Define your freedom needs
- Understand what it really means for you to be financially free. People often think that to be financially free they need to have millions in the bank, and this simply isn’t the case. To be free you only need to bring in enough passive income to cover your expenses. If you live a simple life, perhaps you can do this by bringing in $30,000 per year. Or maybe you own a large home, travel overseas periodically and have children going through college so you want an income closer to $150,000. The point is that you want a perpetual incoming cash flow and a clear understanding of what you plan to spend on a weekly, monthly and annual basis. Make sure that your passive income is greater than your expenses and you now have the recipe for financial freedom!
Financial Freedom
This category includes individuals who are empowered because they have created multiple cash flows. They understand the difference between assets and liabilities from a personal finance perspective and have ensured that all of their expenses are supported by passive income sources. Passive income sources flow cash into your possession without you needing to perform work, for example stock dividends, royalties on music, book sales, etc. Now that these individuals are not tied down to a job just to make ends meet, they have what we all desire – time to do what they want! In order to stay financially free, your driving aim is to develop and grow.
1. Find your passion
- As you use passive income sources and begin to have more and more time available, find pursuits that make you happy and get your juices flowing. In doing so, you are likely to put your creativity to good use and more money will flow into your care.
2. Let money flow
- Recognize that you are not defined by your wealth and that it is a tool for freedom. Some people may become obsessed with their money and develop stress and fear that they will lose it. This is why there were several high profile suicides during the 2008 recession. Please always remember that money should flow in and out. The point is to have more flow in than flows out, but at times this could reverse. This is understandable, everything in life has cycles and experiences change.
3. Accept change.
- Just because one of your income sources is fruitful today, does not mean that it will be tomorrow. Know that this is natural too and that you need to maintain a degree of flexibility. For example, if you own a rental unit in a down-turning neighborhood, you may not be able to charge as much for rent in the future as you do today. Perhaps this makes the net cash flow of the property negative, meaning you owe more in mortgage and upkeep than the rent covers. In this scenario, it may be wisest to sell the property and reinvest elsewhere.
Today I fall solidly into the Financial Independence category and this is continuing to change as my relationship with money develops. I am confident I will reach financial freedom within the next 5 years.
For your reference, I owe a lot of my financial confidence to the books listed below and Tony Robbins videos on YouTube
Total Money Makeover by Dave Ramsey
The Richest Man in Babylon by George S. Clason
Please check them out as they may also inspire change in you.
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