Financial freedom is when your whole life does not revolve around money either due to the lack of it or due to improper management of it.
To be sincere, financial freedom is like walking on a rope. It is tough, requires lots of practice and success is by going forward more than you fall. And the journey is never the same for any two people.
Financial freedom does not come by having lots of money. The quantity of money you have is just one variable in the whole mix and it loses its importance when you have enough to satisfy your basic needs.
Lack of money sure does make financial freedom very difficult to achieve. Imagine working a tightrope on an empty stomach, you will not be able to focus well and avoid easy mistakes. And when I say lack of money don't confuse it with want of money. Lack of money is when you don't have enough to live a comfortable life. Want of money is when you don't have as much money as you want. And, BTW, it is possible to have a fat salary and still lack money. You can earn a lot and still struggle to meet you basic needs.
There is just one variable you need to worry about in your journey to financial freedom. And it is called Net Cash Flow.
Net Cash Flow = Cash Inflow - Cash Outflow
If you make sure that your cash income is more than your cash expense on a long-term basis, you achieve financial freedom.
To make this sink well, I will share with you how I apply this principle in my life.
- Figure out how much exactly you need to live comfortably. This was one of the first things I did when I started my personal finance journey. I tracked my monthly expenses to figure out just how much, on average, I need to fulfil all my financial obligations. It involves breaking all expenses to monthly -- even rent, biannual shopping and vehicle related expenses.
- Keep that monthly expenses figure as low and slow growing as possible. I am sometimes (most times, actually) ashamed to share the tactics I use in keeping my monthly expenses very low. Let's just say I use a clinical approach. I don't do anything to follow trend or impress anyone if it will take more money from my pocket than it will put back into same pocket.
- Grow my Cash Inflow. That's my full-time job as an entrepreneur -- hunting for money.
- Invest more. I invest in my business. Almost everything I make from the business goes back into the business. I also invest for the future. I am constantly preparing myself for the future - both mentally and financially. I don't want to be like some of the old people I see around -- out of touch with the modern world. In my 60s and 70s and 80s, I want to be still as computer (or whatever is the new computer) savvy and intellectually active/productive as any bright 26 year old. So I am constantly abandoning old knowledge/skills and acquiring new ones. I don't stick to old tricks. I use the latest and learn the latest when it comes to immaterial things. It ensures I grow my economic value and earning power (or business power).
- Strategically shifting my expenses to income from investments. I am aggressively growing my investments so I can cover my basic expenses from passive income that comes from those investments. Currently, at a yearly return of 15% I can cover a significant portion of my personal expenses from my present investments. I have managed to be very successful in pegging low my personal expenses and grow my investment. So my cash inflow (from active income and passive income) are growing while my cash outflow is low and not growing. Result: financial freedom.