What is financial freedom?
Financial freedom can mean different things for different people. It is a relative term in terms of people’s psychology and thinking. The meaning of financial freedom for a person may depend upon age, goals, or other factors. A teenager might think that financial freedom is being financially independent and not asking for money from parents. For a retired person, financial independence might be a situation when he doesn’t have to work again. Financial freedom in a layman’s terms would be simply having enough money in hand to achieve the goals set by a person. It is the ability to live life in the way a person wants. There are many questions that can be associated with the financial freedom of a person. For example, a question can be what things are important to a person in life. It could be family, friends, or any other thing. Financial freedom can also be related to not being tied to a particular job or a specific location, that too, for financial reasons. Therefore, financial freedom can have different definitions for everyone. Also, an important thing to know is that financial freedom is a journey that cannot be covered overnight. It takes time, patience and practice. Financial freedom is considerably much more than just having money in one’s pocket. A person can achieve financial freedom only by putting priorities in a perfect order that relate to the achievement of the goals. Also, a person needs to make sure that nothing is holding him back from achieving financial freedom. It is an ultimate goal for every person in this world, but simultaneously it requires time and effort. It requires a person to step away from the job that is not likely. It also needs a person to be able to pay for the unexpected expenses that may arise in the due course of life.
Financial freedom gives many options to a person. These options are desired by many but are not easily achievable. They need precise planning and strategy. There is no one definition or approach to achieve this. A person needs to change money habits and other related habits too. A person can start by saving small and then grow the savings into a large change. Basically, financial freedom is having enough wealth that a person can live without working. In a situation of financial freedom, assets that are created by a person generate revenue or cash flows that allow a person to not work for the rest of the life. These cash flows or revenues must at least be equal to the expenses incurred by a person. Financial freedom can be termed as a passive income that is earned by a person. Important factors that come under financial freedom are assets and liabilities. Assets are anything of value that can be turned into cash or cash equivalent when in need. On the other hand, liabilities are an obligation or responsibility to pay. If a person can generate enough income to cover the expenses that too from other sources than primary occupation, then he or she can be called financially free.
For example, a 25-year-old man has expenses of $1,000 and an income from assets of $1200 then he can be called financially free as income from assets exceeds the expenses. It is crucial to take care of the effects of inflation when we talk of income in future time. There are many strategies to achieve financial freedom and each of them has some positive and some negative effects. These would again depend on the kind of definition one attaches to financial independence and the factors affecting it. A person must plan a financial budget and have a clear view of his or her income and expenses.