Blog | Personal Finance

Define Financial Freedom

No matter how much money you make, you need to change your mindset to be truly free

play cashflow now

I often hear people say things like, “If I only had a million dollars I’d be financially free,” or “If I only had that high paying job, all my money problems would be solved.”

The problem with statements like these is that they assume having a lot of money is what leads to financial freedom. It does not. In fact, you can have a lot of money and still be poor. You can have a lot of money and still not be free.

Take famous people like Ed McMahon from “The Tonight Show” and Nicole Murphy, the ex-wife of actor Eddie Murphy. Each had millions of dollars and lost it all. Nicole Murphy spent her $15-million divorce settlement in less than four years. And towards the end of his life, Ed McMahon faced foreclosure on his Beverly Hills home and owed $747,000 in credit-card debt.

It’s not just a really rich person problem, either. We often think a certain amount of money will provide financial freedom, but we’re often dead wrong about how much we really need.

I wrote about this not too long ago in my article, “The Poor Mindset of a Millionaire.” As I wrote then, “The USA Today reports that at least 37% of American’s believe they’ll need at least $1 million saved up in order to retire safely.” The problem with this is that a million bucks only lasts around couple decades in many places. And in the state of Hawaii, it only would last 11 years. Without knowing how to put that million dollars to work, many people would run out of money in their retirement well before they passed away.

How most people define financial freedom

Most people define financial freedom as having enough to retire. They work hard all their lives, putting money in a 401(k), and like mentioned above, they hope they can make their proverbial million dollars or whatever number they have in their head. Often times, because they will not have steady income outside of their savings and investments, these people are advised by their advisors to cut back their expenses in retirement and live below their means.

They work hard all their life just to decrease their quality of life when they’re ready to enjoy the fruits of their labor. It just doesn’t make any sense to me. And it certainly doesn’t feel like financial freedom.

The true meaning of financial freedom

The reality is that financial freedom is not about how much money you have. Rather, it’s about a change in your mindset.

My rich dad said, “There are two kinds of money problems. Not enough money, and too much money. Which type of money problem do you want?”

Scarcity vs abundance mentality

According to my rich dad there are two types of people in the world. Those that live with a scarcity mindset and those who live with a mindset of abundance.

By the former, what he meant is that many people see a world that is scarce. They think there is not enough to go around, so they operate out of fear. Fear clouds their decision making and keeps them back from doing great things. Fear makes them treat others poorly and look at everyone as a potential enemy who can take what they have. That kind of mindset is a prison.

Other people see the world as one of abundance. They don’t think there’s not enough to go around. In fact, they think that there’s enough for everyone to prosper. And when there’s not, they find ways to create enough. These are the people who start businesses, make winning investments, and live life to the fullest. They are often the nicest and most generous people you’ll ever meet. They are living a truly free life.

there are two type of money problems: too much money or not enough.

When you realize that the world is one of abundance, you stop operating out of fear and instead you start asking, “How can I tap into that abundance?” Once you start asking that, you start seeing the world and how you interact with it in an entirely different way. Then you’re ready for financial freedom. Why? Because the fear of losing money doesn’t control you. You’re free to learn and grow. You’re free to obtain your wealth, not just financially, but also physically, emotionally, and spiritually.

Emotional intelligence will define your financial freedom

In order to move from a life lead by fear into a world of abundance, you need to master your emotions, and that takes a high emotional intelligence.

rich dad tetrahedron

Shortly after my wife, Kim, and I married, we decided to move from Hawaii to California. We were almost one million dollars in debt and understood the only way we were going to get out of our situation was through building our own businesses. There was no way a corporate job was ever going to pay us enough to get out from under that amount of debt.

Within a few months after landing in California, we had run through what little money we had. The business we were looking to start wasn’t working out like we had thought would. For a short time we were even living in our friend’s basements. There were many times we both wondered if we were doing the right thing.

But before we left the sandy beaches of Hawaii we had made a decision. Above all else we wanted financial freedom. And it was during these dark days in California when we often questioned whether we would let fear drive our decisions or would we develop the emotional intelligence required to eventually achieve financial freedom.

Looking back, we know that if it weren’t for our dedication to reading books and attending seminars during those tough times we would have never developed the emotional intelligence required to one day become financially free. It took seven stressful years but in 1994, when our passive income surpassed our monthly expenses, we were finally out of the Rat Race.

The difference between financial independence and freedom

Financial freedom is different than financial independence, which I recently wrote about. As I wrote, financial independence is a simple three-step formula:

  1. I buy and create assets that generate cash flow
  2. The cash flow from my assets pay for my living expenses
  3. Once my monthly cash flow from my assets is equal to or greater than my monthly living expenses then I am financially free because my assets are cash flowing and are working for me.

While this will allow you to be financially independent, it doesn’t always make you free. If you don’t change your mindset or fall back into a fear-based, scarcity mindset, you can easily lose your money or your investments, or make bad decisions that hurt your cash flow. Perhaps worse still, you can become miserly and miserable, even with lots of money coming in. That is not freedom. It’s being controlled by money.

The most important thing to remember when it comes to money is that money isn’t the point—it’s what money allows you to do and be. Money is just a tool for attaining things that make you truly happy. That is freedom.

Be free to be who you want to be through #financialfreedom

Financial freedom is much more than having money. It’s the freedom to be who you really are and do what you really want in life. And many of us lose sight of this by putting others first and playing many different roles such as parent, spouse, employee, friend, and more.

It’s not that those are bad things. Rather they are things that often get in the way of discovering who we want to be in life and going after it. The amazing thing is when you invest in yourself, it pays big dividends not just for you but for all those who love you. They see both your example and experience the joy that comes from realizing your greatest potential.

If you want to be financially-free, you need to become a different person than you are today and let go of whatever has held you back in the past. It’s a process of growth, improvement and gaining spiritual and emotional strength to become the most powerful, happy, and successful “you” possible. That is the true reward of financial freedom.


Original publish date: February 05, 2019

Recent Posts

What is Cash Flow? Cash Flow is King!
Real Estate, Paper Assets, Personal Finance

What is Cash Flow? Cash Flow is King!

Successful Investments are great, but cash flow is where you find peace and longer-term stability.

Read the full post
Four Money Lessons from a Professional Financial Planner
Personal Finance

Four Money Lessons from a Professional Financial Planner

How do the rich go broke? John MacGregor, CFP, shares the lessons he's learned from people who lost it all — and how you can avoid the same fate.

Read the full post
How to Invest Using Other People’s Money
Real Estate

How to Invest Using Other People’s Money (Successfully)

Don’t be lazy. Look beyond your own wallet to raise capital for your next investment.

Read the full post