Money Mindfulness

byrcharinhp99

3.6K followers

2 years ago

Disclaimer:

This post is not meant to intimidate new entrepreneurs. It is not a gold standard for people who want financial freedom because this is not a one-size-fit-all concept. It is different for each person. Most of us haven't arrived yet. This post is probably better suited for intermediate or advanced affiliate marketers.

What Does Financial Freedom Mean?

Financial freedom is having enough money saved, invested, and accessible so you can afford to do what you want, pursue your passions, take care of your needs and those of your loved ones, and live the lifestyle you want without worrying excessively about money. It gives you more options and allows you to make decisions based on what will bring you fulfillment rather than out of financial necessity.

For most people, financial freedom includes being debt free, having a fully funded emergency fund, money socked away for retirement, college savings accounts for kids, and discretionary income for travel, hobbies, charitable giving, and other desires. But the specific numbers and bucket amounts depend entirely on your personal situation.

There is no magic income number or net worth that automatically confers financial freedom on everyone. It depends on your lifestyle, expenses, savings rate, market conditions, and personal preferences. However, having no debt, money in the bank for emergencies and retirement, and consistent positive monthly cash flow are key components for just about everyone striving for financial independence.

Signs You Have Achieved Financial Freedom

- You live below your means and bank the difference

- You have strong cash flow each month

- You carry little or no debt

- You have ample emergency savings

- You maximize contributions to retirement plans

- You have money to spend freely on wants

- Your net worth consistently grows over time

- Money doesn't dictate your career or lifestyle choices

4 Levels of Financial Freedom

Financial freedom is not black and white, all-or-nothing. Rather, think of it as occurring across a spectrum, with different levels representing different degrees of financial liberty.

Level 1: No Debt, Spending < Income

The first level starts when you have paid off all debts and your regular income covers monthly expenses with money left to spare. This gives you freedom from dependency as well as options in the job market since making ends meet isn't your sole concern.

Level 2: Fully Funded Emergency Fund

The next level happens when you have saved up enough money, generally 3-6 months’ worth of living expenses, to cover unexpected financial shocks like illness or job loss. This provides freedom from constant stress about what would happen if you lost your paycheck.

Level 3: Maximized Retirement Savings

This stage kicks in when you consistently max out contributions to your retirement funds, allowing compound growth to work its money magic. This gives you freedom to choose your preferred retirement lifestyle later since you have diligently prepared.

Level 4: Financial Independence

The final destination is having enough assets, typically 25-30 times your annual spending, that you could sustain your lifestyle indefinitely without working if you chose to. This ultimately leads to freedom over how to spend your time since making an income is optional rather than mandatory.

How to Become Financially Free

Achieving financial freedom requires diligence, discipline, time, informed choices, and often some sacrifices along the way. But the payoff can be life-changing.

Follow these fundamental steps to put yourself on the road to financial freedom:

1. Track Your Spending

You can't improve what you don't measure. So begin by tracking every dollar coming in and going out over the course of at least one month, using a budget spreadsheet or personal finance app. This helps you identify spending leaks, build better money habits, and determine how much money you need each month.

2. Pay Off Debt

Carrying debt drains your financial freedom by consuming income that could be saved or invested. Create a plan to pay off credit cards first while making minimum payments on low to no interest debts. Once credit card balances reach zero, put any freed up cash toward eliminating your next debt until you are consumer debt free.

3. Build an Emergency Fund

Before investing toward other goals, first build up savings to cover 3-6 months of living expenses in case of job loss, illness, or other financial emergencies. This gives you confidence to take career risks without worrying about making ends meet. Aim to automate emergency fund contributions so they happen seamlessly in the background.

4. Maximize Retirement Savings

Consistently contribute the IRS-allowed maximum to tax-advantaged retirement accounts like 401(k)s and IRAs to leverage compound growth. Take full advantage of any employer match, which is free money toward your retirement. Automate increases to your contribution rate when you get raises at work until you reach the account limit.

5. Invest Outside Retirement Accounts

Once you have your debt demolished, emergency savings funded, and are maximizing tax-advantaged retirement contributions, invest additional money into a diversified, low-cost portfolio of stocks and bonds. This gives your money a chance to grow much faster over the long run than if left in a traditional savings account. Use taxable accounts so these investment assets remain accessible if needed.

6. Purchase Appreciating Assets

As your financial foundation strengthens, allocated percentages of your investment portfolio to assets that typically appreciate over time rather than depreciate. For most people, this means buying rental real estate or dividend stocks rather than vehicles, electronics, and other consumer goods that go down in value.

7. Increase Your Income

Aside from cutting expenses or lucking into a financial windfall, most people increase their wealth by boosting their income. Seek promotions in your career, invest in your own business, or work a side hustle doing something you love. Every additional dollar earned that doesn't result in an additional dollar spent brings you closer to financial freedom.

8. Review and Revise Plans

Building wealth happens slowly over decades. Financial plans created years ago often need revisions to keep pace with life's changing circumstances. Reevaluate your budget, emergency fund, investment allocations, income streams, and other facets of your financial plan at least annually to ensure you stay on track toward your dream lifestyle.

Benefits of Achieving Financial Freedom

· Less Money Stress: Mental calm comes with financial security from having savings buffers instead of living paycheck to paycheck. This life balance foundation gives you permission to spend on yourself or others when desired without constant anxiety about falling behind on bills.

· Greater Career Satisfaction: Striving for wealth for its own sake often leads to burnout and emptiness over time if the work itself isn't personally fulfilling. Financial freedom means options to change careers or cut back hours doing draining work since making more money ceases to be the top priority.

· More Purposeful Spending: Splurging on fleeting retail highs often leads to buyer’s remorse when done from a scarcity mentality. But discretionary income coupled with financial security frequently results in spending aligned more closely with personal values, creating longer-lasting satisfaction.

· Earlier Retirement Option: Gaining control over when you retire depends largely on when you reach financial independence. Diligently saving early in life expands choices on whether and when to fully stop working or switch to work you find meaningful rather than mandatory.

· Ability to Weather Emergencies: From sudden job loss to health issues to cars needing repair, unexpected life costs remain inevitable. Having an emergency savings buffer prevents otherwise minor financial surprises from turning into unrecoverable disasters.

Freedom to Take Career Risks: Entrepreneurship, job changes, sabbaticals, retraining, leaving the corporate ladder, and other career pivots involve risk. A sturdy financial foundation offers security to take these leaps without needing immediate income replacement.

Energy to Focus on Wellness: Too much financial stress compounds physical and mental health challenges. By contrast, financial freedom helps clear mental clutter, enabling focus toward developing better fitness habits, nourishing relationships, community service, and practicing self-care.

Peace of Mind for Later Years: As retirement age approaches, confidently knowing your savings are sufficient to cover your desired lifestyle brings tremendous relief. Financial freedom ultimately means having the peace of mind that money will flow to support your vision for this culminating phase of life.

Key Steps to Financial Freedom By Age

While becoming financially free at any age brings huge benefits, striving toward benchmarks by different life stages can help you stay on track as other priorities compete for your time and money.

By 25

· Establish an emergency fun

· Pay off all credit card debt

· Build savings habits

· Live on less than you earn

· Invest in affordable real estate if possible

By 35

· Eliminate all consumer debt

· Bulk up emergency account

· Consistently maximize retirement plan contributions

· Save for children’s college if relevant

· Advance your career to boost income

By 45

· Own appreciating assets free of debt

· Ensure retirement savings are on track to support your lifestyle

· Have at least one consistent stream of passive income

· Practice conscious spending aligned with values

· Consider move to lower cost of living area

By 55

· Become completely financially independent

· Footprint allows sustainable withdraw rate from investments

· Have a debt-free primary residence

· Set up trusts/estate planning for heirs

· Focus on personal fulfillment over career ladder climbs

By 65

· Entirely debt free, including no mortgage

· Assets produce plenty of passive income

· Portfolios structured for steady, low-risk income streams

· Lock in the highest Social Security payments possible

· Move to location optimized for desired retirement lifestyle

Common Roadblocks to Financial Freedom

Many circumstances can sabotage progress toward financial liberty. Being aware of them in advance helps you address them proactively if they arise on your journey.

Here are 10 of the most common roadblocks:

Unexpected Crisis: Sudden job loss, health issues, accidents, natural disasters, etc. can rapidly drain savings intended for other financial goals. Having an emergency fund mitigates the money impact so you can get quickly back on track after the fallout.

· Lifestyle Inflation: As income increases, it’s tempting to constantly spend more on bigger houses, fancier cars, and higher-end stuff. Combat this by limiting lifestyle inflation to 50 percent of any raise so your savings continue growing too.

· Comparing to Others: Playing financial “keeping up with the Joneses” by striving for wealth symbols your peers flaunt on social media leads to poor decisions. Run your own race based on intentional goals for experiences that actually match your values.

· Lack of Planning: Failing to budget, ignoring retirement accounts, foregoing emergency funds, and not insuring assets appropriately opens the door to avoidable money disasters. Do the upfront work to educate yourself and create systems so your money works as hard as you do.

· Poor Career Decisions: Chasing jobs solely for higher pay rather than personal fulfillment, failing to develop skills, not keeping networks fresh, and making desperate job changes after layoffs all can negatively impact income. Make career moves deliberately based on purposeful life goals.

· Bad Investment Advice: Get-rich schemes, hot stock tips from unqualified sources, complex products like annuities you don’t understand, and trusting commission-based salespeople often end badly. Work only with fee-only fiduciaries obligated to put your interests first.

· Lack of Savings Discipline: Neglecting to pay yourself first by saving and investing opens the money trap of lifestyle inflation. Make savings automatic every month, even starting small if needed, to build wealth diligence over time.

· Poor Health Habits: Bad fitness habits, inadequate sleep, unhealthy diets, and refusal to get preventative care can remove years from lifespan, sabotaging retirement dreams or requiring costly medical interventions. Prioritize self-care disciplines to enable doing what you love longer.

· Disorganization: Losing financial documents, forgetting payments and moving dates, missing filing deadlines, botching paperwork...life’s overloaded pace makes things slip through the cracks. Create checklists, reminders, and accountability partners to stay on top of critical money details.

· Lack of Patience: Society’s “overnight” successes typically reflect long, arduous journeys of perseverance. Embrace that wealth building is an imperfect yet rewarding marathon rather than a sprint, full of lessons for those willing to learn.

How to Maintain Financial Freedom

Reaching complete financial liberty after decades of focused effort can feel fantastic. But don't relinquish diligent money stewardship just yet - you must take deliberate steps to maintain financial freedom as well through proper self-discipline and planning.

Here are 8 tips for keeping your financial freedom once achieved:

1. Limit Lifestyle Inflation: Avoid the temptation to let newly disposable income trigger significantly higher spending on luxury goods and services. Keep your monthly budget mostly unchanged outside splurging on a few bucket list experiences.

2. Continue Monitoring Finances: Just because you’ve “made it” doesn’t mean you can now ignore savings levels, portfolio balances, tax strategies and the like. Ongoing oversight ensures you don’t slip backwards.

3. Manage Withdrawal Rates: Carefully calculate a safe percentage to withdraw annually from investment accounts to cover living costs. This percentage should correlate with historical returns to ensure longevity of capital for 20+ years.

4. Maintain Side Hustles: Even if you retire fully from traditional work after achieving financial freedom, consider keeping income streams alive from passion projects. These can provide meaning plus replace portfolio withdrawals if markets decline severely.

5. Update Estate Plans: Outdated trusts, beneficiary names, powers of attorney, etc. can cause major problems later. Revisit all estate planning documents regularly to ensure your legacy wishes are legally enforceable when gone.

6. Continually Invest At Lower Levels: It can be tempting to “retire” and neglect investments entirely. But even smaller, automated contributions allow continual capitalizing on compound growth critical for financial freedom to persist.

7. Mitigate Tax Exposure: Taxes represent one of the biggest threats to maintaining financial freedom over decades. Work closely with tax professionals to legally minimize taxation through strategies like Roth IRA conversions, launching donor-advised funds, and utilizing appropriate tax-loss harvesting.

8. Remain Flexible: Life brings surprises, so retaining flexibility allows pivoting without derailing your financial freedom. For example, purchasing long-term care insurance, keeping some assets liquid, and having backup income sources preserves options.

In Summary

Achieving financial freedom involves diligently using your money as a tool to take control over your life rather than being controlled by your finances. Follow the above guidance to reduce expenses, increase savings, eliminate debt, grow your income, properly invest, and maintain discipline today to build the financial freedom to afford the lifestyle you envision over time. With tenacity and patience, living life on your terms can shift from wishful fantasy to fulfilling reality.

Final Thoughts on Reaching Financial Freedom

Regardless of age or income level, anyone willing to commit to money mindfulness has an opportunity to drastically improve their financial situation over time, bringing them closer to the ultimate prize of financial freedom. Small actions repeated consistently, when compounded over years, can yield transformational results surpassing expectations.

On the journey, don’t let perfect become the enemy of good. Progress will never follow a perfect linear path, but financial freedom comes through persevering imperfectly rather than giving up.

Also remember that money itself doesn't necessarily buy happiness - rather, financial independence funds freedom to pursue purposeful passions. So stay focused on how increased financial liberty can empower priorities that give your life meaning, rather than money for its own sake.

Ultimately, adopt an abundance mindset that financial freedom exists well within your reach, whatever your current financial circumstances. With vision, self-education, discipline and determination, you have every tool needed to thrive financially. Why not choose today to start building the life you truly want? He

keep pace with life's changing circumstances. Reevaluate your budget, emergency fund, investment allocations, income streams, and other facets of your financial plan at least annually to ensure you stay on track toward your dream lifestyle.

What does financial freedom look like to you?

TheRachele