You may have heard the term “financial freedom” and wondered what that actually means. You may have also heard of the “FIRE community” — financial independence, retire early. There are so many subsets of that community, from “baristaFIRE” to “leanFIRE” and more.
If you’ve found yourself on the financial independence or financial freedom side of the internet, it might feel like a lot to wade through. But just remember: “financial freedom” is not a one-size-fits-all term. Your definition of financial freedom will likely differ from someone else’s, and that’s a good thing.
Financial freedom is personal, and it’s deeply tied to your vision of what a fulfilling life looks like. So, how do you figure out what financial freedom means to you? We’ll guide you through a process of self-reflection, goal-setting, and planning to help you uncover your own path toward financial freedom.
Financial Independence vs. Financial Freedom
First and foremost, it’s important to distinguish between financial independence and financial freedom. The two terms are often used interchangeably, but they have distinct meanings. Financial independence means you have enough assets or income streams to cover your living expenses without needing to work. Financial freedom, on the other hand, is more about having the choice to live the life you want, regardless of whether you need to work.
Are you seeking financial independence… or financial freedom?
Questions to ask yourself:
- Are you seeking independence from work, or are you looking for the ability to do work you love?
- Is your goal to maintain a simple, minimalist lifestyle, or are you aiming for abundant living with more luxuries?
Financial freedom is about choice—whether that’s the choice to retire early or to keep working but on your own terms. Defining which aspect matters most to you will help shape your financial plan.
Define Your Vision for the Future
Next, you need to have a clear vision of what you want your life to look like in the future. Financial planning isn’t just about numbers; it’s about creating a lifestyle that aligns with your values and desires.
Questions to ask yourself:
- What does your ideal day look like in the next couple of years?
- How does that change over the next 10, 20, or 30 years?
- How do you spend your time? Are you working, traveling, or spending more time with family?
- Where are you living, and what’s the environment like?
- What kind of relationships and experiences matter most to you?
Taking time to visualize the life you want is the first step to understanding what financial freedom (or independence) looks like for you. It also helps you decide on the actions and steps you’ll take to get there. For example, if your version of financial independence looks like retiring at 45, you’ll need a more aggressive investment and savings strategy than someone who wants to retire at 70.
Remember: There’s no right or wrong answer here. It’s about what resonates with you personally and what you see for your future.
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Define Your Financial Priorities
Once you have a clear vision for your financial future, it’s time to align your financial goals with that vision. Financial freedom isn’t just about having a large bank account; it’s about living according to your values. For some, that means prioritizing security and having a large nest egg. For others, it’s about pursuing passions or spending the money you’ve worked so hard to earn.
We’ve worked with clients who are comfortable working until the “normal” retirement age — around mid-60s. However, once they retire, many of our clients want to use their money to fund their travel and exploration. Those costs are different from the costs of maintaining a home and “regular” bills, so we make sure to create a financial plan that ensures they can spend what they want in their retirement.
Other clients want to retire early to spend more time with their families and are OK with being more “frugal” to ensure their money supports them for longer periods of time. Plus, they can potentially gain more compound interest the longer their funds are invested.
So, the question becomes: What are your financial priorities?
Questions to ask yourself:
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- What values are most important to you? Security, flexibility, family, travel, etc.?
- When do you want to retire from your job/main source of income?
- How do you want your finances to support those values?
- What kind of sacrifices or trade-offs are you willing to make to reach your goals?
When your financial priorities align with your core values, every financial decision you make becomes more intentional. This alignment gives you clarity and focus, helping you make choices that bring you closer to your vision of financial freedom or financial independence.
Evaluate Your Income and Expenses
Now that you have a clearer idea of what financial freedom (or independence) means to you, it’s time to take a look at your current financial situation. Understanding where you stand today will help you map out the path to where you want to be.
Questions to ask yourself:
- What does your current income and spending look like, and how does it align with your vision for your financial future?
- What changes can you make today to start moving toward that vision?
Review your spending habits and see if they reflect your values and long-term goals. For example, if your version of financial freedom means being able to travel more, but you’re spending a significant amount on unnecessary monthly expenses — or you can’t travel as much because your work PTO restricts you — it might be time to make some adjustments.
Set and Track Financial Goals
With your vision and current financial situation in mind, it’s time to set tangible financial goals. These goals should be specific, measurable, and aligned with your version of financial freedom or independence.
Rather than saying, “I want to be financially independent and retire at 45,” break down your goals into manageable steps. For instance, you might need to focus on building investment portfolios or maximizing your retirement contributions now and finding other strategies to grow your investments or funds later.
Questions to ask yourself:
- How much money do you need to achieve your goals?
- What milestones do you need to hit in order to achieve your goals (e.g., higher contributions for early retirement, paying off debt, building passive income streams)?
- How will you track your progress toward those milestones?
- Do you need to work with a financial planning professional to find the right strategies to help you reach your goals?
Consider the Trade-Offs
Achieving financial freedom or independence often requires making trade-offs along the way. Whether it’s cutting back on spending now to invest more for the future or delaying certain luxuries, understanding the sacrifices you’re willing to make is crucial.
Questions to ask yourself:
- What are you willing to give up or delay today to achieve freedom or independence in the future?
- How do you balance enjoying your present lifestyle with planning for your future?
Remember, this isn’t about depriving yourself today—it’s about making intentional choices that bring you closer to the life you want. Find a balance that allows you to enjoy the present while still working toward your long-term goals.
Create a Financial Freedom Plan
By now, you should have a clear idea of whether you’re going for financial freedom (flexibility to do what you want with your money) or financial independence (not relying on a job to provide your income). We’ve hopefully guided you through gaining a better understanding of your current financial situation and the steps you need to take to reach your goals.
Now, the final step is to create a plan that ties everything together.
Questions to ask yourself:
- What small steps can you take right now to move toward your goals?
- How will you stay motivated and accountable on your journey?
- How often will you check in on your progress — and revisit your values?
- Do you need to work with a financial planning professional to find the right strategies to help you reach your goals?
Financial freedom is not a straight line; it’s a winding journey. This is why it’s critical to continually review your progress and iterate on your plans. Stay flexible and be willing to adapt to the changing landscape. Regularly reviewing your goals and plans also allows you to iterate and adjust based on what works well and what doesn’t. This continuous refinement keeps you aligned with your evolving aspirations.
If you want help creating your financial freedom plan — or expert support as your plan changes — we can help.
Start your financial freedom journey today
At Guiding Wealth, our team of expert financial planners is here to help you realize your dreams of financial freedom and/or independence. We get to know you and your goals for the future, as well as assess your current situation. Together, we can bridge the gap between where you are and where you want to go.
We are experts in financial planning and investment management — and can discuss risk tolerance, investment options, and next steps to help you attain financial independence or freedom.
We offer transparent fees for our advice (rather than commissions for specific investment products), and we will educate you throughout the process. You can learn more about how we help clients at Guiding Wealth here!