Following These Steps Can Lead You to Financial Freedom
Paul Fain, CFP®
What is financial freedom? The answer is a slightly different picture for everyone. But there are some common characteristics.
According to Dr. Brad Klontz, Psy.D., CFP and an expert in financial psychology, “What we want to focus on is that financial freedom where you can do what you want, where you want, with whom you want, and you don’t need to worry about paying your rent. You do not need to worry about how you’re going to cover medical costs.”
That sounds great, but how do you get from here to there? Is financial freedom even possible? A recent survey found that 66% of Americans live paycheck to paycheck. U.S. households owe a record $17 trillion in debt, which averages $104,000 per household. The median retirement savings for all families is $87,000. These are not awe-inspiring statistics for those dreaming of financial freedom.
But it is possible. Remember the Chinese proverb that goes “The journey of a thousand miles begins with a single step.” The first step on the freedom path is financial literacy, a basic understanding of money. Knowing your financial circumstances. Learning how to make money, how to spend it, and how to save and invest. It is setting and prioritizing realistic financial goals. It is living on a spending plan (budget) that includes short-term and long-term savings and debt management.
The next step is financial security. With education, hard work, budgeting, realistic expectations, and discipline, you can meet your family’s basic needs: housing, food, and health care. And, ideally, provide some of those extra, discretionary things like occasionally dining out and taking a vacation. A common trap at this point is feeling like there is never enough money to be secure. Reevaluate your financial circumstances and expectations. Is it true? Or are you anxious under the weight of consumerism or even envy?
Do you have enough income, savings, and investments? If an assessment is affirmative, you have reached a state of financial wellness where you can comfortably pay expenses, pay off your debts, endure unexpected financial emergencies, and plan for long-term financial goals such as saving for college and investing for retirement. With an estate to manage, you can begin thinking about your legacy.
The transition to financial freedom is accompanied by an awareness that, as Klontz notes, “you are able to use money to buy your time.” You can take a sabbatical from work or even retire. You can live on your own terms. You can spend more time with family, or traveling, or learning, or pursuing a hobby.
Financial freedom is not reserved for high-income professionals or successful business owners. There are plenty of teachers, utility workers, manufacturing employees, and others who are financially independent. They all started with a single step.
This article originally appeared in the Knoxville News Sentinel online on August 30, 2024.
