What is Financial Freedom

Hola and welcome to The Summit, my biweekly newsletter where I share my unfiltered thoughts on navigating the peaks and valleys of adulthood. From health and relationships to productivity and purpose, consider this newsletter a collection of naive wisdom from a 20-something year old summiting the mountain of life.

Today: What is Financial Freedom?

Financial freedom - such a buzzword in our society, everyone wants to be financially free. But what is it really? Some people say it is when you never have to work a day in your life again. Some people attach a number to it, they say it is when you have 1 million in the bank. Some say it is when your house is paid off, when you have enough money to work part-time, or even just when you do not have to worry about your finances anymore.

But this is pretty vague don’t you think? I certainly do.

I first asked myself this question when I was setting my career goals. I was four weeks into my first 'big boy job' when I decided it was time to sit down and plan out what I wanted the next few years of my professional life to look like (I was actually just trying to plan how long until I could afford to stop working and go travel again).

I grabbed my giant white board and wrote down two numbers, $1,000,000 and $100,000. I figured, once I have $1,000,000 invested in shares, I would earn a passive annual income over $80,000 which would be substantial enough for me to retire; and once I save my first $100,000, I will have earnt myself a 6-month holiday. Cool – I had my numbers in mind, now I just had to look at my saving/spending habits and calculate how long it would take for me to get to this point. By my rough calculations, if I continued to live with my parents, never ate-out and picked up a second job, it would take me 2.5 years to earn my travel break, and about 15 years to retire. WTF. In all honesty, my heart sank. Don't get me wrong, I understood that these numbers were great, a millionaire by 35, how could I expect any better than that!? But that wasn't the problem.

Maybe I just wasn’t 'big boy' enough, but the thought of another 2 and a half years, let alone 15 did NOT sit well with me. Completely dissatisfied, I started to question these numbers. Why $1,000,000? Do I really need $80k/year passive? Could I survive off $60k? Wait what do I actually need right now? Why am I racing to hit these goals? Would I actually want to retire at 35?

My mind was seriously racing. Quickly becoming overwhelmed, I grabbed a pen and paper, locked myself away in my bedroom and did some of the deepest thinking and reflection I have done to date, addressing every question methodically, and setting, questioning and revising my life goals. I credit this night for completely altering my trajectory at the time. Today, I want to share the thoughts/revelations that I found most impactful.

1. Would I actually want to retire at 35?

   • Yeah duh, I thought at first, who wouldn't? But what would I do when I retire? Surf all day? Devote myself to health and fitness? Just go travel forever? Maybe, but probably not. It sounds fantastic, but if 35-year-old me is anything like 21-year-old me, he will probably want more than just recreation, something to work on, a part-time job he enjoys, a volunteering gig, really just something working with people where he can make a positive difference.

   • So what I found, was that my ideal world included a nice balance of free recreational time, part-time work, travel and volunteering of sorts. Interesting.

2. How much money would I need to earn to live my ideal lifestyle?

   • I got into the nitty gritty numbers here, but my main take away was that I generally value cheaper, quality activities over more superficial and expensive activities, especially if it means I can put my money towards other goals. For example:

     1. Outdoor activities (surfing/hiking) > Indoor activities (shopping)

     2. A picnic > A lunch out

     3. Hosting drinks > Going out to the pub

     4. A games night > Going out for dinner

   • I found that I needed far less money than I had presumed. From my rough calculations, it was less than 40k/year...

3. How much money do I need to have saved to before I can start living this lifestyle?

   • This was my favourite question. The more I thought about, the smaller the number got. Why do I need to have any amount saved beforehand? What am I chasing? How wealthy do I want to be?

   • I found that I just want enough wealth to live my life comfortably and support a family when the time comes. Anything more is a bonus.

   • I don't think it matters how much I have saved, but instead that my financial habits/systems are on a growth trajectory.

4. How much do I need to save/invest to continue growing my wealth at an acceptable rate? What is this rate?

   • Inspired by both, The Richest Man in Babylon and The Barefoot Investor, I decided that at a minimum, I would save and invest 1/10th of what I earned – non-negotiable. However, depending on my income and the 'buckets' I am using to support my lifestyle, I would aim to save as much as possible, all surplus income above my needs.

5. F*ck it, can I do this now?

   • Yes, yes I can.

Two months later, I stepped down from my full-time role to two days a week.

Now I understand that I am extremely privileged to be in a position where I can make a choice like this, not everyone can. However, I do believe that everyone can and should take the time to answer some of these questions for themselves. I think people would be pleasantly surprised with what they come up with.

Further thoughts:

Have you read the story of the Mexican fisherman? When sharing my thoughts on financial freedom with my therapist, she shared the story with me. I think it is brilliant.

Final thoughts to myself:

• I totally understand that I am 21, young, naïve and foolish. I will probably disagree with much of what I have said as time goes on, but that’s okay. All I can do is be truthful to my current self.

• If I have solid financial habits (meaning I don’t stress about money and live within my means) and live my dream lifestyle, am I in some ways financially free right now?

• What if my circumstances change? If I have a family to provide for? Will I wish that I had spent more time saving instead of chasing joy and adventure? Maybe? Or will I wish the opposite when my kids ask me the same questions...?

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