I hear the phrase “Financial Freedom” batted around like it’s goin’ outta style. Scammy multi-level marketing outfits tout financial freedom, mutual fund and money management companies refer to it, magazine covers…it’s everywhere. I guess Financial Freedom means a lot of things depending on who it is you’re asking. The problem with advertising that phrase is that most of the people being advertised TO will have actually achieve Financial Freedom in a practical sense.
- Did a sucker that signed up for an MLM and actually ended up paying more money than they made over time achieve financial freedom?
- Did a mutual fund that lost money over the past decade (while taking 1% of assets per year) really deliver you financial freedom?
- Does XYZ’s list of “The Best Dividend Stocks” deliver you financial freedom when they were all Financials that cut their dividends in 2008 and 2009 and their shares lost 80-95%?
What is Financial Freedom To Me?
F&*! You Money. Yeah, that’s right. That’s what it is to me. It’s having the kind of money that if an important customer or a corporate higher up calls you up and starts tearing you a new one, you can say, “F@#$ You…Bye” and walk out the door without thinking twice. In effect, you have so much money, that you could care less. It means you have no qualms about paying for your kids’ college tuition and board at a reasonable college of their choice. It means that when taxes rise substantially (which they must as a mathematical certainty) and when Social Security delivers little meaningful income (which it is virtually assured that payments will go down while collection age goes up) and when your pension’s in trouble because your company allowed unfunded obligations to continue unabated and declared bankruptcy (which many do today – and you get a “portion” of your prior obligated commitment)…when these things happen, you are completely insulated from the madness – because you’re “financially free”.
We’re nowhere near that point. Realistically, I don’t know that we ever will be. Heck, we have three young kids at home, we’re on a single income, and I don’t work on Wall Street. So, at the moment, we’re getting by. But that doesn’t mean that Financial Freedom isn’t something people should strive for. We should all have goals, right?
What Are We Doing to Pursue Financial Freedom?
We attempt to balance pursuit of these lofty goals with living in the moment and enjoying life with our young children simultaneously – reasonable consumption with aggressive savings/investment targets. By living within our means and employing sound money habits, we’re providing our family a decent chance of a comfortable retirement, fully funded eduction for our offspring, and possibly, generational wealth.
Some basic tenants of this plan include:
- ALWAYS spending less than we bring in. This entails NEVER paying a single cycle of credit card interest, ignoring “no payments for 12 months” come-ons that DO actually have to be payed for someday, and other instant gratifiers with negative long-term consequences.
- Appropriately aggressive investing strategies. People are gun-shy from the recent financial crisis and market decline. Stocks declined more quickly an unabated than anyone our generation has ever witnessed. So, this was great for us on the way back up because we didn’t panic and sell. In fact, we bought more, while continuing to make routine periodic retirement investments. Over long periods of time, longer even, than the 10 year lost decade we just lived, stocks tend to outperform all other conventional assets. Why? You’re being compensated from the risk I just highlighted. Investing in savings accounts is about as safe as you get, and you can have a fat 0.5% a year on that right now. Leaving money in a money market account in a 401K for 30 years is a great way to lose money to inflation to the tune of hundreds of thousands of dollars come retirement. While diversification and risk management is prudent, being overly conservative in your long term investments is downright dangerous.
- Exploit Opportunities as they arise. Aside from seeking to maximize long term returns for college and retirement funds with long time horizons, I employ various tactical investment strategies in the small portion of our funds in a traditional trading account to exploit market herding and inefficient market developments (see how I make double digit returns in any market by seeking to short ETFs that lose value over time).
- Save for a rainy day. Not only do we set money aside for college funding and retirement, but we also carry an emergency fund. while this emergency fund doesn’t earn blockbuster stock market returns and it could have been a nice vacation and flat screen TV instead, it will cushion us in the event of some catastrophe we can’t even contemplate. Our is about 3 months’ salary, but depending how we look at it, we could free up more in a pinch. Having no cushion at all can force life-changing decisions though, like having to sell major investments at a loss, having to sell a house, having to do things that you wouldn’t have done if you only had a cash buffer.
- Back to Basics. By starting with some basic financial keys to success, these are some basic tenants to build the foundation for a successful financial future. But it never stops. It’s an evolving process.
What Does Financial Freedom Mean to You?
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