Five Pillars of Financial Freedom
“Someone is sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett
I have two daughters. In fact, as I type this they are both not in their beds where I left them around 8:45 p.m. They are quite cute. One is wearing doughnut pattern pajamas. The other is wearing her blue t-shirt she received from participating in Bloomsday – a local 7+ mile run (she cheated and rode in a stroller the entire way!). In any event, I mention this because my kids are huge part of why I want to be financially free. I submit that it is an absolute necessity for you to clearly and concretely answer this question, “why do I want to be financially free?” If you fail to do this, you will regularly sacrifice your future freedom for the pleasure of the present.
Take some time and answer “why.” Is it so that you experience a less stressful life? Is it so you have more time to spend with your family? Maybe you want to devote time to solving some of the biggest problems our world faces: poverty, malnutrition, or child trafficking. The point is that each of us must have a clear vision of why we want to be financially free before we can realistically expect to achieve financial freedom.
Once you’ve determined why you want to go after financial freedom, we need to define what “financial freedom” constitutes. Obviously, there is a diversity of definitions for financial freedom. Most of us think the lack of financial freedom is represented by having to go to work each day to pay our expenses. If you do not have to go to work and you can pay your annual expenses, then that constitutes financial freedom in my mind. As a result, I define financial freedom as having annual income, excluding wages, greater than annual expenses.
Ok, so you’ve determined your “why” and your definition of financial freedom. Now, how do you achieve financial freedom? Great question – which I am going to answer over the course of a five-part series. In part one I will cover why avoiding bad debt is extremely important. In part two I will explain why home ownership is crucial to building wealth. Part three will address employer provided retirement plans such as a 401k or 403b. In part four, I will cover both the Roth individual retirement account and the Traditional IRA. In part five, I will explain why a health savings account might be the single greatest retirement tool you are not currently using.
In short, if you stay out of debt, own your home, contribute to your 401k, IRA, and HSA, then you are a saving superhero, and you probably don’t need to read this guide. For the rest of the mere mortals in the room, this guide will explain to you with concrete numbers how you too can achieve financial freedom.