The term “financial freedom” has been floating around for quite some time. I like the concept and recognize it means different things to different people. Suppose the term evokes an empowering and inspiring feeling in you. In that case, it’s the correct term to use in exploring financial strategies. If the term evokes stress or even embarrassment, we’ve got to find the concept that works better for you.
Often, when I begin work with a client, it’s apparent that the goal of living “debt-free” for them is synonymous with financial freedom. I can easily tell when all their priorities have been shifted around to accomplish the goal of minimizing or eliminating debt. For individuals or families with limited income, accumulating high-interest rate debt can create a poverty cycle, where income barely covers interest payments, and it may be challenging to cover living expenses, much less emergencies.
This is not the scenario that I’m addressing here.
I’d like you to consider that problems may arise when we feel trapped by our lifestyle. Maybe we’re unhappy with work. Perhaps we’re accumulating unproductive debt tied to depreciating assets – or no assets at all. Maybe we’re running in social or professional circles requiring a certain expenditure level. Perhaps we’re maintaining adult children who are well past the time to start living independently. It’s healthy to step back and consider if your requirements are truly locked in; you may have the freedom and control to make adjustments, even if they feel uncomfortable.
For my entrepreneurs and HENRY (high-income and not rich yet) clients, it’s a fantastic exercise to consider how reasonable, competitively priced debt structures can help pave the path toward growing revenue and/or acquiring appreciating assets.
For self-funding entrepreneurs, thinking about debt as an accelerator is important to help you build capacity and/or grow your top line. Using debt responsibly is almost always cheaper than bringing on investors and shrinking your equity ownership. Employing the right, affordable debt structure can better align your cash flows and balance competing interests – e.g., business expansion plans vs. a desire to fund your retirement account.
For our family, reasonably priced debt allowed us to live closer to work and our first-choice schools. This decision dramatically reduced our commute and time spent waiting in traffic. This debt, which was tied to an appreciating asset, bought us precious hours in a time-strapped world and dramatically enhanced our quality of life.
In mid-life, achieving financial freedom is directly tied to your lifestyle and requirements, which can vary tremendously from one family to another. The net worth required to support a family living comfortably, spending $100,000/year, is much lower than the family spending $500,000/year. The more you can lower your overhead, the more you can enhance your prospects of living a financially flexible and comfortable life.
Sometimes, it makes sense for a retiree to maintain a reasonable mortgage instead of draining retirement funds that can be diminished after tax. Leaning on an affordable mortgage in retirement can lower the odds that you might need a reverse mortgage (and liquidity) for medical and other care expenses later in life (monetizing your home’s equity in a less-than-cost-effective way).
I see that income-generating activities are no longer relegated to the young! I have clients working part-time through their sixties and into their seventies; it’s fantastic being part of their financial freedom journey, which is often hard-won. Enjoying supplemental income, engaging with a team, and feeling a contribution to an organization or a project can be core to achieving financial independence and a sense of well-being.
No matter what stage of life you’re in, it’s key to clarify what financial freedom means to you, specifically, and what this looks like in everyday life. It often involves giving up the low ROI (return on investment) expenditures that are not adding value to your life today or your future self. It can mean relocation to a less expensive market, which is often an option today in our Zoom economy. I’ve got clients with plans to spend significant retirement time in affordable and exotic places like Italy and Panama; getting creative with this exercise is exciting.
It felt great for my family to know we had achieved financial freedom when I could step out of corporate roles and launch my own business. We recognized that we had that option after years of living below our means in an affordable city while consistently investing for our future. Underwriting the first few years of launch involved taking on reasonable debt, which I had every confidence would offer a fantastic return on my investment (and future); three years into this new chapter, my hopes have been realized.
If you want a sounding board and strategist to help you explore what financial freedom means to you, consider options you haven’t considered before, and review your use of debt as another lever on your journey, let’s have that conversation.
Investment Advisory services offered through Equita Financial Network, Inc., an Investment Adviser with the U.S. Securities and Exchange Commission. Equita Financial Network also markets investment advisory services under the name AegleWealth. The foregoing content reflects our opinions and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.