“Wealth is what you accumulate, not what you spend.” - Thomas J. Stanley, The Millionaire Next Door
What’s financial freedom really?
"Financial freedom" is a term thrown around loosely. According to most people, financial freedom is the freedom to buy and own a lot of crap…er, I mean, stuff. If you have the ability to buy a new suit, a new car, or a new house, many would say that you’re financially free. Which, of course, isn’t true.
If you think about it, this definition of financial freedom means that we’re all free. The ability to own a lot of stuff is really only a credit card bill away, isn’t it? But if you’ve ever felt the suffocating feeling of a growing consumer credit balance, as Ramit Sethi from the IWT platform reminds us, you know that this is the exact opposite of free. In essence, it’s placing higher value in financial obligations than financial freedom.
Which is the crux of the problem. We, as a society, focus our ambitions, energy, and goals, on the wrong things. And when it comes to financial goals, it’s not how much we save, but how much we spend. This is a telling sign of the way most of us think. Keeping up with the Joneses, playing the part, and having a short-term outlook are all core drivers of this consumer mindset.
Breaking your mental bonds
When it comes to getting out of debt, saving money, and achieving financial freedom, it isn’t a matter of making credit card payments, increasing your savings, or building your investment portfolio. It’s a matter of breaking free of societal groupthink and focusing your goals on what really matters: achieving what you love.
“I am not impressed with what people own. But I’m impressed with what they achieve,” Stanley, from The Millionaire Next Door, reminds us.
When you follow the traditional mindset of financial freedom, the only thing you achieve is high debt, depreciating assets, and mandatory obligations. Doesn’t sound like freedom to me. Rather, we need to shift our mindset from what we can buy to what we can achieve.
When we do this, getting out of debt and finding true financial freedom will be like taking one sure step in front of the other. But, as easy as that might sound, setting achievable goals may be tough. For me, I’m able to do it in the following ways:
A lot of times, breaking the habit of spending is near impossible. Instant gratification is so much quicker than long-term happiness. Because of this, it’s easy to forget about the long-term all together. We have to "think with the end in mind,” as Stephen Covey reminds us. Everything we do today should get us to where we want to be tomorrow.
If your goal is to save money for travel abroad, don’t think of the monthly minutia of saving. Rather, think about how each successful month of saving gets you one step closer to your travels.
I mean…because it is. I’d say it’s our most valuable resource, not to mention the ultimate equalizer. But when we get caught up in consumerism, we are basically valuing the fun of owning a Lexus, for example, more than the extra time you’d have by not working off your car’s lease payments.
When I set out to make a significant purchase, I always weigh the opportunity cost of lost time. Sure, you might be able to buy a nice house in a nice neighborhood, but if the mortgage is high enough to require you to work for the next 30 years to make ends meet, it’s probably not a wise purchase.
If you had a modest house and a small mortgage, you could spend less time working for an income producing job and more time following your passions, which, paradoxically, will probably make you more wealthy over the long-term.
The two hardest things to do when you want to change your mindset are starting and continuing. It’s easier to stay on the earn-and-consume treadmill than it is to get off and start down another path. The only way to shift your mind and break away is to follow your emotional passion.
If you’re following your emotional passion, you’ve ensured that you're heading down a path of sustainability. A lot of times, worthy goals take a long time to achieve, sometimes years. You need to both believe in them and want to see them through to the end.
Even more, no path to achieving your goals is smooth. There will be peaks, dips, and many bumps in the road; these obstacles may send you right back to the earn-and-consume treadmill. But when you’re emotionally invested, you’re able to keep going when the going gets tough.
The bottom line that your journey to true financial freedom begins with a mindset shift. The bonds of groupthink need to be broken. To do this, you need to refocus your goals from the accumulation of things to the accumulation of achievements.
When this mindset shift is achieved, you’ll not only feel free, you’ll be free.
Additional reading: Check out the I Will Teach You to Be Rich blog for actionable advice on financial freedom