Summary: In our very first post (yes! this is post #1!!), we offer our definition of financial freedom and why we think it is so critically important for everyone to pursue as their goal. Regardless of whether or not you are happy in your job, creating an alternative income stream that rivals the income from your day job gives you the freedom to choose, reduces stress, confidence when you gain control of your finances, better prepares you for those curveballs in life and allows you to gain even more enjoyment out of life.
For those of you who have already achieved financial freedom, Congratulations!
For those of you who haven’t yet, it’s not because you don’t have the resources or the ability, it’s simply because you haven’t set it as a goal.
Here at Semi-Retired MD, we are strong believers in goals. When you set a clear target, all of the steps you need to take to achieve that target become clear and actionable.
Before we dive into the reasons why financial freedom should be your goal, we want to define what we mean by financial freedom.
What is financial freedom?
While there are a lot of different definitions of financial freedom out there, we think it’s useful to think of financial freedom as the point at which you generate enough passive or semi-passive income to cover your daily living expenses.
When you reach this point, you decouple work from money.
In other words, you no longer have to work at your job in order to pay the bills.
It’s important to note that there are two ways to reach financial freedom:
1. Increasing your monthly passive/semi-passive income
2. Spending less
We recommend doing both simultaneously.
For example, while Kenji and I were building up our real estate holdings to increase our semi-passive income, we were also working on reducing our spending. We ate out less and made fewer visits to Starbucks. With just these two simple changes, we reduced our monthly spending by over $1,000. This translated into $12,000/year less in passive income that we needed to generate to cover our daily living expenses. Seen another way, this means we moved ourselves towards financial freedom $12,000 faster each year. A combination of investing that saved money in real estate each year and the power of compounding made a big difference in our trajectory towards achieving financial freedom.
It’s also important to remember that it’s much easier to save $1 than it is to make $1 in income. Because of taxes, you have to make somewhere around $1.30 or $1.40 in order to put $1 in your pocket.
Now onto the reasons why financial freedom should be your goal.
Why financial freedom should be your goal
Having the freedom to choose
The freedom to choose is one of the most powerful characteristics of financial freedom. It’s the freedom to choose what you do for work, how much time you spend at work (if any) and the way you spend your free time. It’s the ability to choose how and with whom you spend each day.
Reducing stress
When you don’t have to worry about how you are going to meet your and your family’s basic needs, there is a sense of relief. That sense of relief grows (and perhaps even turns into elation) when you realize you can handle any financial crises that may come your way.
Gaining control of your finances
As you work towards achieving financial freedom, you develop a valuable lifetime skill along the way. You learn how to control your finances.
What this means is that you know exactly what is coming in and what is going out each month. You know how much you’ll have left over in savings after all of your expenses. You’ll know exactly how much of the savings you want to set aside for investing.
Being prepared for sudden illness or disability
Have you thought about what you would happen to your finances if your partner suddenly became ill or disabled? Would you be able to meet your daily needs? Would you need to move to a different house or would you need to increase the amount of hours you work?
Having financial freedom means that you already generate enough passive or semi-passive income to cover your daily living expenses. So, in this difficult scenario, you wouldn’t have to add in worrying about how to make ends meet.
Enjoying your time
When you are wrapped up in survival or in an unfulfilling or stressful job, it’s difficult to enjoy the small moments of the day. Little frustrations may become unbearable. We interact with our loved ones (and patients!) in ways we regret.
Certainly we will all continue to have some of “those” days no matter how much money is in the bank. But I, like many people, have found that by reducing financial stress, I get much more enjoyment out of my medical work and have less frustrating experiences. Because I am choosing to be at work (instead of having to be there), I find I am more patient, understanding and empathetic.
If you agree that financial freedom should be your goal and are ready to take actionable steps toward achieving this goal, move onto our next post by clicking here.
