The (financial) Freedom Formula

Neither of my parents came from much. My father’s father worked on the railroads as an engineer. It took everything he had to provide for his wife and six kids. My mother’s parents were business owners. They owned a jewelry store. In the early days of the business, they did not have much either. Their wealth did not begin to snowball until very, very late in life, and that was largely thanks to some very timely investments my grandfather made. He was an early investor in initial public offerings such as Coca-Cola and Walmart. Because of those savvy investments and the proceeds from selling my father’s business, my mother can live a comfortable retirement life. She isn’t wealthy, but she has reached financial freedom.

What $ does it take to reach financial freedom?

Definitions of financial freedom vary. Some say it means having enough money that you can live the lifestyle of your choice. I think of it slightly differently.

To me, financial freedom is having enough money that you don’t have to work in a certain job just to pay your bills. You have the freedom of choice over the type(s) of work you do. Some might call that financial independence.

It requires more than a six-month emergency fund. Because that only buys you financial freedom for a limited amount of time.

Financial freedom may feel out of reach for you. If it does, here are a few paths you can leverage towards such a goal.

Paths to financial freedom

There is no one-size fits all path to financial freedom. But, must advisors admit that there are some essential components.

Save

I will just say this right out of the gate. I don’t believe that a person can save their way into financial freedom. Particularly in an economic environment where inflation is running at least twice the norm.

But, managing your money carefully can be helpful. By creating and sticking to a budget (I recommend using apps such as Mint or Truebill to automate the process), you give yourself more money to work toward your goals. Rather than letting your money be spent on frivolous things.

Earn

The more money you have to put to work, the faster you can reach financial freedom. That is, assuming you don’t spend your money wastefully.

Asking for pay raises when appropriate, getting promotions, or changing companies for better pay is one way to increase the amount you are earning. But, for me, there is a better way.

I have used freelancing to increase my income for the past ten years. The results have been life-changing. That extra income when toward paying off debts, establishing a large emergency fund (greater than 6+ months), and investing in various avenues (startups, the stock market, and real estate).

If you are finding saving your way to financial freedom a bit slow, then consider freelancing to make additional income.

Invest

I put this after Earn because you need excess cash flow to invest. The only way my maternal grandfather was able to invest in Coca-Cola and Walmart was that he had extra income he could put to work.

While everyone’s investment portfolio can be unique, some best practices include maximizing your contributions to retirement accounts and investing in a mix of mutual funds.

What is the Freedom Formula?

Most financial advisors will tell you to approach financial freedom similarly. Budget wisely and invest when you can. They usually don’t focus on being offensive with your earning potential.

The Freedom Formula that I follow approaches financial freedom differently.

It includes a good defense, i.e., budgeting where your money goes. For example, when possible, I advise “paying yourself first.” When I help people build a budget, I start with putting 15% of their money aside for building up their emergency fund, paying off debt, or investing.  We put the remaining 85%, again, when possible, toward their regular expenses.

The other piece I focus on is being offensive, i.e., making more money. I encourage people to find ways to increase the money they bring home. Sometimes that means finding ways to make more money in their day jobs. But, more often than not, it includes encouraging them to consider starting their own business, even if it is only part-time.

I don’t make these recommendations lightly. I suggest them because they have worked for me.

Has it taken a lot of discipline to work all day and then, most night, put in a few more hours on freelancing? Absolutely. But I loved it. Especially now, seeing the position we are in and having the opportunity to build my own business from the ground up.

If you'd like to connect and talk about my process or get my advice on what you are doing today, feel free to reach out by clicking on the button below!