Imagine being able to make important life choices without money being a major factor. Imagine being able to spend your time how you choose as opposed to having your time allocation dictated to you by someone else. Think about your life and how you spend your time. How much of it is truly spent how you would like? What percentage of your time at work is truly rewarding? Whether you are in a job you like or not, would you prefer to work fewer hours, spend more quality time with family and friends, and spend more time on hobbies that you enjoy? Everyone has a limited amount of time to allocate in their day, week, year. Yes, time is a limited resource for every single person. It’s universal. There’s no escaping this truth. Money, on the other hand, creates more or less limitation on your choices depending on a number of factors. Most people are not born into financial riches. Most need to earn money and make trade-offs about how they spend, save, and invest what they have. Financial freedom is the concept of being about to do what you want (to varying degrees) without money forcing you to do something that you’d rather not do. My journey to financial freedom took about 16 years from the time I made it a goal at age 23. I believe that it is something that most people can achieve. However, achieving financial freedom is rarely a quick journey but rather usually requires many years to achieve. Most people never achieve financial independence, not because it’s not possible for them, but because they don’t have the financial literacy, the idea and the will to make it a priority, and/or the discipline to make prudent choices and decisions. Let’s look at each of these.
FINANCIAL LITERACY
Financial literacy is a cornerstone building block to achieving financial freedom…and then once it’s attained, keeping it. There are many examples of people who’ve achieved financial freedom only to needlessly squander it. Some of these examples include high profile athletes and big lottery winners. Unfortunately, financial literacy is not usually a focus of primary or secondary school curriculum, nor is personal finance a required course at the university level. So, it’s no wonder that that a huge swath of the population possesses an inadequate understanding of personal finance. Those who do have a high degree of financial literacy were either lucky enough to have a parent or mentor to teach them valuable lessons or they figured it out on their own. Speaking from personal experience, I can say that almost everything that I know about personal finance is learned from my own curiosity in seeking out that information. I hope that what I share in this section of this website/blog will be helpful to others who seek to improve their own financial literacy. The good news is that no advanced knowledge of higher math or economic theory is required for someone to achieve financial freedom. The concepts are actually quite simple.
MAKING FINANCIAL FREEDOM A PRIORITY
Before financial freedom can become a goal, it must first be an idea meaning that someone must see it as a possibility. For some people, it never even becomes an idea, so they may continue on with their life for years until one day they wonder how much longer do they need to work for “the man”. If you’re reading this blog post, you have at least thought about the idea of achieving financial independence. I can tell you that it is possible. The younger you are when you commit to making it a priority the sooner you will get there. In fact, starting early is probably the single most important factor in reaching financial independence. I’ve met many people who either procrastinate the decision to begin or they come up with all kinds of excuses why it’s not possible or important. One thing is for sure: if you don’t even try then you’re not likely to achieve financial freedom.
PRUDENT CHOICES/DECISIONS & GOOD HABITS MATTER A LOT
How often do people make choices and decisions without thinking through the consequences? Some choices and decisions can have very long-term consequences, financial and otherwise, that can limit a person’s future choices and personal freedom to live their life on their own terms. The younger you are when you think about all of your decisions through the lens of their future financial consequences on your life, the more likely you will be to reach financial freedom. There are three reasons for this:
Fewer poor financial decisions in your past
Starting early means that you will have made fewer poor financial decisions from which you will need to overcome.
Develop good habits sooner
Good financial habits can lead to a consistent increase in your wealth.
More time to build wealth
Building wealth sooner enables you to compound that wealth over more years resulting in financial independence sooner.
While possessing the knowledge to make good financial choices is necessary, acting on that knowledge in a consistent way can be very hard for people. Discipline is so important as is thinking ahead. The famous Marshmallow Experiment first done at Stanford University in 1970 illustrates just how hard it is for people to think long-term and accept delayed gratification for a better long-term outcome. In some ways, the path to financial independence is like a several decade marshmallow experiment.
HOW TO GET FINANCIAL FREEDOM
In a nutshell, for most people achieving financial freedom involves two distinct activities:
- Exchanging your time to generate income but saving some of that income to build a reserve.
- Growing the reserve (i.e. your wealth) to generate more wealth.
Once the annual growth of the reserve/savings covers all your living expenses then you could stop exchanging your time for income. The first activity is active while the second can be completely passive. Passive is great because you can then spend your time as you choose while your wealth grows on its own.
Early in life it’s important to maximize your saving and increase your income. The more you have built up your savings the more important it is to increase your rate of return on your savings; however, you must also be more careful to avoid devastating mistakes that could lower your wealth and set you back.
GETTING STARTED
I will be writing a series of blog posts that may be helpful in your journey to financial independence. The posts involving financial literacy will be categorized in the Financial Freedom section of the blog.
The opinions, thoughts, analyses, stock selections, portfolio allocations, and other content is freely shared by GauchoRico. This information should not be taken as recommendations or advice. GauchoRico does not make recommendations and does not offer financial advice. Each person/investor is responsible for making and owning their own decisions, financial and otherwise.