hat does financial freedom mean to you?
To some people, financial freedom is the ability to buy what they want when they want. For others, it’s knowing that they don’t owe a cent to anyone in the world. To someone else, maybe it means early retirement.
All those things sound great. For me, personally, at this stage in my life, financial freedom means that I’ll never have to stay in a job that makes me miserable. It means having options.
What exactly do I mean by that? Well, to me, financial freedom is the freedom to choose.
How many people do you know who are working jobs they can’t stand, because their financial situation makes it impossible for them to leave? Maybe they have a huge car payment, or have taken on a mortgage they couldn’t afford to pay if they were out of work for a month. Maybe they’ve racked up credit card debt they can’t get out from under. Those people are trapped, and I wouldn’t do that to myself for all the beautiful homes and fancy cars in the world.
For me, financial freedom is knowing that if something changed at my work, and it started making me unhappy, I could leave. Here’s why:
My mortgage is affordable
Like, really affordable. Cheaper than what a lot of people in my city pay for rent.
Yes, I got a good price on my house, but there’s more to it than that. Here’s the secret: I bought a house I could afford. What does that mean? Well, the bank will tell you that no more than about 30% of your gross income should be allocated towards paying your mortgage, but I think that is too high. My husband and I own our home together, and my half of the biweekly mortgage payment is 10% of my gross biweekly pay.
But what does it mean in tangible terms? It means that I don’t have a big, fancy house like some of my friends. I could, if I wanted to borrow every cent the bank would lend me. But I don’t. You know why? Because as much as I admire those big, beautiful homes, I’m not willing to become “house poor” to own one. I live in a two-person household, and we don’t need a big home. I’m happy that we have money left over after we pay our bills to save, invest, and spend on doing things we enjoy (in my case, travel!).
My car is affordable
Yep, there’s a trend here. While my peers are driving around in nice new cars with heated seats and back-up cameras, I’m driving a ten year old Pontiac Vibe whose only “luxury feature” is air conditioning. I’m talking manual locks, manual windows, and a single-disc CD player as the entertainment system. I bought it five years ago for $7000, and it has been super-reliable.
Sometimes I fantasize about getting a new (to me – I always buy used) car, but as long as it is not giving me any trouble, why should I? I have no car payment! Sure, that new car smell is nice, and I sure would appreciate heated seats during our long winters. But I know the truth: That feeling of excitement when you buy something shiny and new is fleeting. Soon, your new car just becomes your car. You know what isn’t so fleeting? A car loan. So no thanks, I’ll hold on to my old car as long as it is mechanically sound.
I try really, really hard to only buy things that I can pay for
This seems like a no brainer, right? Well, you might be surprised how many people don’t realize that if you always live beyond your means, you will never achieve financial freedom. So what does this mean in real life? Well, it means that even though I have lots and lots of credit available to me, I only allow myself to buy things that I know I can pay for by the time that credit card statement is due. Why? Because I never, ever pay credit card interest. Credit card interest is the enemy of financial freedom (future post to come on that topic!)
I’m not going to lie: this is hard work. It’s especially hard if you used to spend without discretion. It is hard to break that habit. But living within your means (actually, living below your means) is absolutely essential to financial freedom.
The reason living below your means is essential to financial freedom is because if you spend every cent to earn, you will never save anything. That’s right: even if you master living within your means, if you do not make a regular habit out of saving, then you will never have financial freedom.
When you have a solid emergency fund (for example, enough to cover a few months’ expenses), then you will never be trapped. If something drastic changes at your job, and you need to get out quick, you can. If you get laid off tomorrow, and it takes you six weeks to find a new job, you’ll be fine. Saving gives you peace of mind, and that, friends, is freeing.
I find the best way to start a healthy saving habit is to pay yourself first. It’s a great idea to set up an automatic transfer from your chequing account to your savings account on payday. When you “set it and forget it”, savings becomes like a fixed expense that you know you have to pay, kind of like your mortgage/rent or cell phone bill. You don’t miss the money because it’s as though you never had it.
So that’s my intro to financial freedom. I hope it helps you think about some small changes you can make that will have a big impact. Interested in checking out more blogs about personal finance? This list is great place to start!
What are you doing to get yourself closer to financial freedom?