E44: How to Define Financial Freedom And Get There

Nate: In this episode we will discuss how financial freedom can mean different things to different people. And the importance of defining it for yourself so that you know the exact steps you need to take to get there. She’s Holly, and she helps people find financial freedom.

Holly: He’s Nate, he makes sense out of money. This is Dollars and Nonsense, if you follow the herd you will be slaughtered.

Reading about how younger people are trying to be financially independent, or retire early, or what does that look like for them? How do I actually be financially free or independent and what does that mean? And I think that financial freedom means very different things for each person and individual, but yet we always try to put ourselves in a box of what somebody else is doing, or what society tells us we should be doing. Because that’s their definition for them of what being financially free is, instead of actually looking at and answering the question what is financial freedom mean to you?

So do you have any ideas of what financial freedom might look like for somebody?

Nate: We absolutely do. And we’re not trying to say we know what it means for everyone, but we are gonna go over three different things that we thought would be very helpful to understand when defining your own route. So we’ve got three examples really that we’re gonna cover today. And that surely probably won’t cover everything, but as Holly was saying, I really am a firm believer that everyone’s financial path can be different. Just because somebody’s main goal financially is to, I don’t know, leave $10 million to their kids the day they die, maybe that’s their big vision. That doesn’t have to be yours. In other words I’m trying to say don’t try to fit your dreams into other people’s expectations, or just try to model it after somebody else.

Because I really do believe that if you know what you’re striving for, it’s way easier to back track and see what steps you have to take. If you don’t know what you’re really shooting for, then you don’t really know if you’re doing things right. So that’s what Holly and I are trying to get across today.

And the first example or definition for financial freedom, I guess I’ll start with the most common one I think Holly. When a lot of people hear financially free, a lot of times that has come to mean your passive income is greater than your lifestyle. That’s kind of the buzz for financial freedom is trying to generate passive income so that you can pay the bills, live your life, without even having to work. I think that’s a great idea, Holly, but that doesn’t have to be the only way for financial freedom I don’t think.

Holly: Nate you’re right, it’s not the only way basically having passive income greater than your lifestyle. The reason I believe that people actually believe that, and they look at that is because that’s what society and most of us have been taught to believe is that we wanna work until we get to an age of retirement. Whatever age that might be. You might be young and say, “Hey, I wanna retire early.” You might have the mindset of I wanna work as long as I can before I retire. But the reality is, we have been taught that we basically work, and at some point in our life we retire. And when we retire, we have to know that our income coming in, whether it be passive income, or residual income coming in is greater than our lifestyle. And most of the time in order to do that, we either have to change our lifestyle drastically or reduce it in some way, or we have to have this automatic amount of money not just counting that nesting, but money that we know is going to be coming in for us. So this is a belief we accept, just because that’s what society tells us at some point we wanna retire. Now I’m gonna say I actually don’t believe in retirement, and I think actually retirement means you’re of no use to society basically. You’re not giving back to society, and I think that’s why a lot of people have a hard time even when they retire. They don’t have anything to do.

Nate: It actually is kind of unhealthy, they’ve found too, it can be to some. I don’t like making absolute statements for everybody, but I’m in totally agreement Holly, that the conventional thinking of retiring at age 65 and never doing anything else that’s productive really, and just doing whatever you want all the time, it gets old, and you’re not needed anymore. You don’t feel productive anymore, and they say it’s unhealthy. They say those who kind of go that route become more sedentary, their minds stops being stretched so it stops working as well, and they get some other issues. So I’m in agreement there. That’s why I don’t think it has to be everyone’s goal and agreement. The goal of life financially doesn’t always have to be because I don’t wanna work anymore. That doesn’t have to be your view of your financial freedom. Can it be one? Yeah, that’s probably the most common one, I don’t wanna work. A lot of times that’s the reason this comes up is I don’t wanna have to work. So I wanna make sure that I have enough passive income coming in.

Holly: Or they wanna control how much they work. Maybe they don’t wanna work 40 hours a week, or they don’t wanna do the same thing. Maybe they wanna try something new. You see older people going back to even school, or finding or mentoring younger people, or things like that. So if your goal is hey at this age though, I want to retire, and I want to do something else. Or I know I wanna be in control of what I can do, I would say with that you wanna know you have passive income. And the only way to really know how much you need is not through a magic number.

Nate: There’s so many variables that would go into that.

Holly: And that’s where you really need to find out what age do you really honestly wanna retire if that’s what you wanna do? And really start finding out and asking how much passive income do I need to maintain my lifestyle? ‘Cause we don’t know 20 years from now, 30 years from now even what taxes are gonna look like, what inflation’s gonna look like. We have no idea. All we have is the past to look at to predict the future. So if that’s your goal in mind, though, you do need to have some type of passive income coming in if you wanna retire. So that’s one idea of being financially free.

Nate: As this is probably the most common vision for financial freedom is to have passive income greater than your lifestyle, building that, remember the goal … I wanted to mention this … On all of these that if that is your vision, if that’s really what you’re shooting for, Holly and I may not be shooting for it, that may not be our vision as we’ve mentioned. That can be yours. However, if that is your vision, you need to make sure that the steps you’re taking today are actually contributing well towards that.

Some people say they wanna retire in 10 years, Holly. Or they wanna be able to stop working. And then you look at what they’re actually doing with their money to build towards that and you’re like, “That’s not gonna work.” What you’re doing, you’re 30 and you’re maxing out your 401K and you’re thinking that’s gonna let you retire at age 40? That’s not gonna happen. You need to change, you need to do something else. That’s not what a 401K does, I don’t believe in it to begin with, however it’s certainly not going to help you retire early. That’s really not the goal of the 401K at all.

So make sure that if that’s your vision, make sure that the steps you’re taking and things you’re doing with money actually is going to help you achieve that. Don’t just do what everyone else is doing but think you’re gonna do it better than them or something like that. Or different inside of it. I don’t even know. But I’ve just seen some people when you look at what they’re doing, and they’ve got this vision for when they want to be financially free and there’s no way what they’re doing is actually gonna take them to that result.

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Holly: The reality is Nate, that even when 401Ks and that came into being, they really came into being to take over kind of pensions that were around. We used to have pensions, and in other countries they do have pensions still. But the whole purpose was kind of even like with social security would provide one-third basically of your living, pensions would provide the other third, and your savings provided the other third. So there was three entities, or three things for that passive income. And in reality now, you need to be asking yourself even if you’re in your 40s or 50s, “Is social security even gonna be there?” Because if you’re depending in it to provide some type of passive income, I wouldn’t be banking on it.

Number two, if the 401K is the only thing or retirement program you’re looking at, you need something else to supplement that passive income. It can’t just be one thing that’s going to be the passive income. Or the belief of as long as I just keep maxing out my 401K I’m gonna be okay. You’ve gotta get outside the box thinking, and you gotta stop just doing what everybody else is doing and find a program that works for you that creates that passive income.

One idea isn’t gonna be the only one that’s gonna make you have passive income. There’s gotta be multiple in my viewpoint, creating that passive income, not just one 401K.

Nate: Make sure that the assets you’re buying and the things you’re investing in, that their main goal is to achieve what you’re trying to achieve too. Don’t try to turn an asset class that’s not really designed to do what you wanna do, and try to force it into it. It makes it difficult if not impossible.

So the first definition of financial freedom, making passive income greater than your lifestyle is a very common one. But a lot of the times it’s attached to the people who don’t want to work anymore. Then there’s kind of another side of things where maybe that’s so far down the road, you’re in such a mess financially that doesn’t even seem like it’s possible. Our next definition of financial freedom is maybe that just simply means finally being in control of your money and getting rid of the debt that’s nagging you all the time. So if you’re deeply in debt and you feel out of control, you shouldn’t even be shooting for this whole dream of financial freedom in the future, passive income coming in, all of that. Maybe if we could just get out of debt and we could gain control of our spending, gain control of the money that’s coming through us, maybe that’s enough to be called financial freedom.

Holly: Well and I think that’s important Nate, is understanding that for some of us it is literally being what we would call debt free. There’s nobody we actually owe money too. Maybe we own all of our cars, we own our houses, we don’t actually owe anybody money. If you are living paycheck to paycheck and not living within your means, the idea of just being financially independent and financially free is not having to make minimum payments on that credit card. That is a monkey on your back that you’ve gotta somehow get off. So really if that’s your goal is hey, financial freedom means to be I don’t have anymore debt. Or maybe the only debt is the mortgage, and that’s something that you can live with, then that’s the goal you need to be working towards in regards to how do I get out of this debt to be financially free so I feel like I can breathe and live? Versus every time that paycheck comes in you’re like, “Okay this money’s going there, this money’s going there.” And by the end of the month you’re just hoping you have a little bit extra for something for yourself.

That’s what the majority of us are in, we’re spinning our wheels. We’re doing all the work, and everybody’s getting all the money because we owe so much in debt. We’re just in debt, and we’re a society that is continually reaching that platitude of just being in constant debt, owing third party debt everywhere we look. Stop keeping up with the Joneses and start taking your money and living within your means, and start making some changes.

Nate: You know, that might [inaudible 00:15:30] again to some of the people passive income greater than lifestyle crowds. No get more debt, get more debt, buy more properties, do this and this. It’s all about income. And we understand that. But once again, if you are that adverse and you don’t actually enjoy getting into debt, you hear those people saying yeah, that makes sense mathematically if emotionally it’s gonna destroy you. So that’s what we’re trying to tell you. If you have a vision for what you want your life to look like, it doesn’t have to look like what everyone else thinks it should look like. And it doesn’t even have to make mathematical sense necessarily. I think it probably does, but it’s okay if your vision is just simply owe no man nothing, and don’t get into debt at all. That’s okay.

Make sure that the steps you’re putting into place help you achieve that sooner rather than later so that you can really feel this freedom without having to really stress out about what about next, what about next? Just live the life that you wanna live. If that’s just a simple debt free life, go for it. That can be freeing right there. Don’t fit yourself into another person’s mold.

Holly: Our third one really is leaving a legacy, and that is really important maybe for some of you, you haven’t even thought of what does it mean to leave a legacy? For me this is one thing I’m very passionate about, or for me I wanna know that once I have graduated from this earth, that there is a legacy to be passed. And I don’t even just look at my kids, I think of when my kids have kids, okay? They’re too young to have kids now. I wanna be able to have left some legacy to them. It’s not just a monetary number to me, it really is for me to very well be able to have educated them on how money works, and how they can control spending and things like that.

For me the legacy is that as long as they understand how money works, and how to live within their means, then I’m gonna be passing a legacy to them. Because they’re not gonna hopefully get into the lifestyle of work really hard, buy assets, work really hard, buy more assets, and all their money goes to somebody else and not them. For me it’s leaving a legacy yes, there’s a number associated with that, but there’s also an educational piece because I found it very, very interesting an article I was reading said that 80% of money left to family members, there’s no instruction on how that wealth is to be spend per se, or they haven’t been educated on it, that within 18 months the entire legacy is gone. It’s been spent. So for me it really is that legacy and what does that legacy look like?

And I think a lot of us think in our head automatically a monetary number. And we say, “I can’t leave anything to my kids or my kid’s kids. I’m just trying to make ends meet.” And I would say that you actually can leave them something, because you’ve walked through life. And if that’s what you wanna do, find a way to leave them something. Because something isn’t necessarily that monetary value, but something is a life lesson you’ve learned along the way.

Nate: Right, I mean some people I even talk to who kind of feel awkward about leaving money to their kids, or they’re worried that they’re going to squander it, they’re going to waste the wealth. And while that may be true, your job while you’re here is to leave the legacy and coach them on how to work with money. And if they choose to abuse it, don’t sin because of their sin type of thing. In God’s word it says, “A righteous man, a good man leaves an inheritance for his children’s children.” And you know, we ought to consider family wealth as something that’s important.

So maybe that’s what your vision for financial freedom is, is being able to build this foundation of this family wealth. You may not ever get to the Rockefeller wealth, but you can do it on your own scale. You don’t have to be a multi-billionaire to change the direction of your family’s future for forever. Or at least for many generations.

And tied into that I guess, Holly, could also be this legacy picture. But that could also kind of flow into financial freedom just simply means you have more than enough for what you wanna do. Maybe you’re not worried about quitting your job, maybe you’re not worried about stop working, maybe you love your work and you don’t want to stop. So your goal isn’t necessarily to create a lot of passive income, but your goal is to have more than enough and to leave as much as we can to others. And that can be perfectly fine. So make sure, once again, that as you see that as your future, what are you doing today to make sure that happens? Not only with the dollar figure, as Holly said, not only with actually leaving money, but what are you doing to prepare … If that’s a vision of yours, what are you doing to prepare your family to receive it? To start thinking like a family business, or family office, or whatever you wanna call it, so that you can get them on the same team as let’s all build wealth together. And let’s change things for generations.

Holly: What you said was just perfect in that, is that the legacy you leave hopefully isn’t just for your kids and their kids. But because of how you left that legacy, it continues for generations to come. And it’s not being, like Nate said, a Rockefeller. It’s being what your family is. Okay? Whatever that name is, and whatever that legacy is. We don’t have to achieve what somebody else did, we just have to have our financial freedom in what we are doing, and in what we actually are trying to achieve. If any of the three that Nate and I said don’t even resonate with you, ask yourself, “What does financial freedom mean to me?” Answer that question for yourself. What does it look like and what does it mean? And go from there.

Maybe you don’t wanna leave a legacy for your kids, but you wanna give it to an organization, or build something. Whatever that is, find it for yourself, and start implementing the tools necessary to achieve that. Don’t just have the great idea and don’t do the work to make it happen.

Nate: You know, there’s many different futures, there’s many different visions for all of us. I encourage you, spend a little bit of time and figure out what your financial vision is, what financial freedom means to you. And then back track and make sure to hit that you’re doing the right things. And if the things you’re doing right now are not really focused on that type of aspect, then make a change. Life’s too short.

So with that being said, this has been Dollars and Nonsense, if you follow the herd, you will get slaughtered.

Holly: For free transcripts and resources, please visit livingwealth.com/e44.