The Journey
Ready to embark on the journey? Uncertain about which path to choose? The key is understanding your current position, allowing you to decide the most suitable journey. Although, over time, you may have the chance to experience both journeys, venturing on "The Financial Independence Journey" is only possible if you've already achieved Financial Freedom.
The Financial Freedom (FF) Journey
The individual who has attained Financial Freedom is in a comfortable financial position, typically characterized by minimal or no debt. Any existing debt is considered somewhat positive, such as an early paid-off mortgage on their house or monthly credit card balances promptly paid off without incurring interest. Before delving into further traits of someone who has achieved Financial Freedom, it's essential to clarify the two statements made earlier.
The term "good debt" may sound paradoxical, but it refers to a type of debt that many individuals will likely have—namely, a mortgage. Few people can afford to pay for their first house in cash. If one can achieve that, they are already Financially Independent. The concept of "good debt" in this context suggests approaching a mortgage sensibly, including:
- Avoiding purchasing more house than one can afford.
- Making a substantial downpayment.
- Opting for a 15-year fixed-rate mortgage.
Regarding the mention of having a credit card, it is acknowledged that, for many, having a credit card is not advisable due to potential mismanagement. The recommendation is to abstain from having a credit card, especially for those lacking self-control or already in credit card debt. While circumstances may warrant the use of a credit card, it is emphasized that if the balance cannot be paid off quickly (within 60 days), it could lead to long-term financial consequences.
A personal confession is made about having a credit card, but the crucial distinction is that the balance is never carried from one month to the next. The credit card is solely used to facilitate passive income through owned businesses. Further details on this aspect will be provided later on, ensuring clarity on the earlier statements.
Now, let's revisit other key aspects of someone who has achieved Financial Freedom:
Emergency Fund: They maintain an emergency fund equivalent to at least 3-6 months of their salary or monthly expenses, opting for the greater of the two.
Retirement Investments: They are actively invested in a 401k/403B and pension plan, contributing up to the company's matching limit and more if feasible. Additionally, they participate in a self-directed or managed Roth IRA, with Traditional IRAs considered as well.
Education Savings: If they have children, they have established a 529 College Plan or a similar educational savings plan for each child.
Estate Planning: They have a Living Will and a Last Will and Testament in place, ensuring that their wishes are documented and known in any situation.
In essence, individuals who have attained Financial Freedom experience a lack of financial stress, leading comfortable lives without living paycheck to paycheck. They can enjoy vacations with family and friends, handling financial challenges effortlessly. While this is an enviable position, the question arises: If Financial Freedom provides such comfort, why pursue Financial Independence?
This is an excellent question, and to explore the answer, let's delve into the Financial Independence Journey. This journey is one that has already been embarked upon, offering various avenues to achieve Financial Independence. The goal is not just to attain it but to continually enhance it by implementing new ideas and strategies.
The Financial Independence (FI) Journey
Let's clarify the concept of Financial Independence (FI) right away to provide a clear understanding. In simple terms, individuals who are Financially Independent don't worry about money—period! While they may not be as wealthy as figures like Bill Gates or Warren Buffet, they possess the financial capability to handle any situation life throws at them. Whether it's embarking on a two-week vacation, funding their child's education at a prestigious institution like Harvard, or acquiring a reasonably priced new car under $50,000, they can do it all without any financial concerns. Achieving zero debt is a key aspect of Financial Independence, including paying off mortgages on their properties. They own everything outright, and the money they receive is theirs to use as they see fit, often reinvesting in themselves and contributing to philanthropy to support those less fortunate.
A noteworthy distinction between those who are Financially Independent and those with Financial Freedom is the nature of their work. Financially Independent individuals typically work for themselves, if they choose to work at all, and derive most of their income from passive sources. This means that even during sleep, vacations, or attending family events, they continue to generate income effortlessly.
Having completed my Financial Freedom journey, I commenced my journey towards Financial Independence in 2019. To document this ongoing journey and assist others with similar aspirations, I decided to start this blog. It's crucial to emphasize that I make no guarantees; I'm simply sharing my achievements and failures along the way. My goal is for readers to find ideas and opportunities that may benefit them on their own journeys. Achieving Financial Freedom (FF) or Financial Independence (FI) is attainable for anyone who desires it. While it may not be easy, many who attempt may encounter setbacks or perceived failures. The key is not to give up at the first obstacle or failure but to view it as a learning moment. Obstacles, whether external or disguised as friends, will be part of the journey, and overcoming them is essential for success. Surrounding oneself with like-minded individuals and continuous learning contribute significantly to personal growth. The saying holds true: "If you want to see your future, look at your friends." To foster growth, connect with people who know more than you, whether locally or through online groups. Such communities provide invaluable support for those striving to improve themselves and put their aspirations into practice.
Now that you are aware of the distinctions between FF and FI, it's time for you to choose your path below and embark on your journey. Brace yourself, as the FF journey might be challenging, but remember, your financial success hinges on your commitment. You can choose to chart your own course now, or you can continue to let debt dictate the course of your life. Especially for those with children or aspiring to have children, undertaking this journey is crucial, as it can break the chains of debt and potentially lift your family from the cycle of poverty that may have persisted for generations. Remember the saying that holds true—your circumstances and upbringing don't have to determine your success. Make the decision now to enhance your life, paving the way for a brighter future for everyone who follows in your footsteps!