Financial freedom is defined as the amount of money a person or household has available to meet their living expenses and financial goals without relying on a traditional source of income such as a job or employment. It is the ability to make decisions based on personal preferences and not financial constraints.
Here are some important points to remember in terms of financial freedom.
Passive income: Many people who are financially independent have a variety of passive sources of income, including investments, rentals, royalties, and business income that does not require active day-to-day management.
Debt-Free: Achieving financial freedom often involves reducing or eliminating high-interest debt. Being debt-free allows individuals to use their income for saving, investing, and lifestyle choices rather than paying off loans.
Savings and Investments: Financially free people typically have substantial savings and investments. They may have a well-constructed investment portfolio that generates returns, helping them maintain their lifestyle without relying solely on earned income.
Emergency Fund: Having a robust emergency fund is crucial for financial freedom. This fund provides a safety net for unexpected expenses or disruptions in income.
Budgeting and Frugality: Financially free individuals are often disciplined budgeters. They prioritize needs over wants, live within their means, and avoid unnecessary expenses.
Career Flexibility: Financial freedom allows individuals to choose their career paths based on passion and fulfillment rather than solely for financial reasons. They may have the flexibility to pursue entrepreneurial ventures, part-time work, or non-profit activities.
Retirement Readiness: Achieving financial freedom often involves adequate retirement planning. Individuals can retire comfortably and maintain their desired lifestyle without worrying about running out of funds.
Lifestyle Choices: Financial freedom provides the freedom to make lifestyle choices without being constrained by financial limitations. This could include travel, education, philanthropy, or pursuing personal interests.