Posted by If you’re a regular reader of this blog or listener to my podcast, the chances are that you’re striving to achieve financial freedom.
I think sometimes people lose sight of what it actually means to be financially free. It doesn’t necessarily mean having no debt; instead, it’s about your income streams and how you manage your cashflow. It’s about making your money work hard for you, rather than working hard for your money.
If your goal is financial freedom, how do you get there? At the end of last year, I talked to author and financial expert Joey Muré about this very topic, and it certainly raised some interesting points.
Getting off the hamster wheel
The first thing to think about is about how hard you’re working. You could be making a great living at work, but at what cost? If you’re working 60+ hours a week to keep up with the demands of your job, that’s not freedom, no matter what your salary is.
I’ve talked before about how I spent one birthday in Spain at my desk trying to save a deal, whilst my family had the party outside without me, and Joey shared a similar story where he’d be on holiday with his family, sending them off to the beach so he could take ‘just one more call’. Hours later, he’d be on his way out to join them just as they were coming back because they were done for the day.
Financial freedom means you’re taking yourself off the hamster wheel, that there’s less requirement of your time, and your money is doing the heavy lifting – i.e., passive income.
More money, more problems?
It’s also important to remember though, that having more money doesn’t necessarily mean more freedom. In fact, it could take you in the opposite direction. Too many people, when their salary increases, find that their lifestyle gets that little bit more expensive too, so they end up in the same hand-to-mouth existence as when they had half the salary.
If that income was to stop, they’d be in big trouble very quickly – all those little luxuries that became the norm add up! So, what you need to understand is that at a very basic level, financial freedom means having enough passive income to cover your monthly expenses.
Taking control
The first step to financial freedom is to look at who’s in control of your money. If you’re paying someone to look after your investments – that’s abdication of one of the most important things in your life. Financial freedom isn’t handing your money over to somebody else (and paying them for it), but taking control and fully understanding how much money you have, and what you’re doing with it.
The importance of having a clear vision
So how do you take control? During my conversation with Joey, he outlined three steps that you need: the goal, the plan and support.
You always have to start with a clear picture of what your life will look like when they’ve become financially free. Most people have no idea what they’re trying to accomplish. They’ve got their heads down, slogging away on that hamster wheel, trying to keep up, but they’re not working in tandem with a vision.
What will you do? Who will you spend time with? What will your day look like when your calendar is no longer dictated by other people? Without that, you can’t know what your next step – the plan – should be. I’ve talked at length about setting goals: really drill down into the detail of what you want your life to look like, and then build your plan from there.
Where are you right now?
To build your goal and plan, you have to know your baseline wealth. It’s only when you know where you’re starting from that you can figure out where you’re going, after all.
The baseline wealth exercise is a key component of my coaching programmes. How much money do you have? What are all your different streams of income? What are your outgoings?
This is an important step and you need your goal, your vision, to complete it. What are you spending your money on? Is it supporting that or going your vision? The baseline wealth exercise gives you clear sight of the things you could stop spending out on, because they don’t support the vision you’ve created. It doesn’t mean they’re wrong per se, they’re just not right for you, right now.
Starting the journey
The next step of the plan is examining your revenue streams. How are you going to make money? How do you know what you should put it into? It all comes down to your investment personality.
Where do you sit on the spectrum of Gambler to Analyst? If you’re skewed to one side or the other, there’s going to be a problem. In a rising market, the gamblers do great. But when it crashes, they crash and burn. The analyst will almost never lose any money because they spend so much time analysing a deal that they’ll never actually make it. You need to find a balance in the middle!
Be wary of investing in sectors you don’t have experience in because they look like no-brainers on the surface (in fact, run a mile from anything being described as a no-brainer!). Joey and I both had horror stories of investing in areas we thought would be easy, and yet both ended up costing us.
Why debt freedom isn’t the same as financial freedom
A slight tangent here. It’s a common misconception that being financially free is the same as being debt free, but that’s really not the case. According to Joey, where your money goes should, by and large, be dictated by how much passive income it could earn you.
Should you take the money you’re planning to invest and buy an asset that produces passive income, or should you use it to pay off a debt? It’s a matter of doing the numbers. Does the asset produce more passive income than it reduces your monthly expenses? Choose the one that best supports your goals and put your money there. I think a lot of people focus on how much money they have or can make, but remember that what you really want is for your monthly expenses to go down.
The importance of a mentor
Lastly, the support. Taking control of your financial future doesn’t necessarily mean going it alone. A mentor or coach is invaluable on the path to financial freedom.
Somebody who’s been there and done that to show you the way, so you can get to financial freedom as fast as possible. You might think that’s a needless expense, and that you can figure everything out yourself but really think about it. Are you really saving money if you end up making a mistake that costs you 10x more to fix than it would to have hired a coach in the first place?
I went after a deal in 2005 that stood to give me double my investment in returns and ended up losing me 500k. If I’d had a mentor, they would have advised me to look at the downside, rather than only focusing on the potential gains (which was all I could focus on). It’s one of the reasons I build my own community: as a younger man, I felt most of the time that I didn’t know anyone that I could rely on to ask questions, and I don’t want other people to have to go through what I did!
The reality of it is that financial freedom isn’t about being debt-free. It’s about having the freedom to do the things you want to do and spend time with the important people in your life, but without running yourself ragged trying to fund that lifestyle. It’s about taking control of your financial future and understanding where your money is going, rather than leaving it in the lap of the gods!
If financial freedom is your goal, but you don’t know where to start, why not book a Strategy Call with me? During this brief conversation, we’ll discuss your situation, your goals and obstacles that may be standing in your way, to determine which of my coaching programs would be the best fit for you.
If you’ve found this blog interesting, you can listen to my full conversation with Joey Muré on Episode 226 of the podcast – it takes a much deeper dive on the topic and is packed full of useful insights.