Independence Day & Financial Freedom

June 21, 2011

Financial FreedomMarin Mommies is happy to present another great guest article by Marin mom and financial planner Katy Song, CFP®.

Independence Day brings all things red, white and blue, parades, barbeques and most importantly… a day off from work! While I love the work I do, it is always nice to have an extra day off and enjoy the energy of July 4th. As most of us learned in grade school, Independence Day commemorates the day we declared our independence from Great Britain with the goal of creating the “land of the free”. This got me thinking about the meaning of financial freedom and how to achieve it.

Whether you have a huge investment portfolio or are in debt, most people claim to want “financial freedom” in their lives. I certainly do!

My definition of financial freedom has two parts. First, it means knowing my overall financial position and the impact of all my financial decisions on reaching my goals. These goals range from having a sufficient emergency fund and saving for a month in France next summer to having money for my children’s education and affording a comfortable retirement. Second, it is the ability to work for myself (not being tied to a 9-5 job), and thus spending lots of quality time with my family.

You might describe financial freedom with any of the following attributes:

  • Making money doing your dream job
  • Enjoying flexibility and a day-to-day lifestyle of your choosing
  • Having income streams that fund your lifestyle
  • Achieving financial security
  • Investing wisely with significant income
  • Being on track for financial independence (i.e. no debt and not having to work for money)

Once you define what financial freedom means to you, follow the three steps below to help you on your journey:

Step 1: Know your current financial position and set goals for achieving financial freedom. What assets do you have? How much debt do you owe? Do you spend more than you make? Where do you want to be financially in one, five and twenty years from now? There is no wrong answer to this.

Step 2: Manage your money with intention and spend less than you make. By living below your means, you will have the cash to pay off your debts, as well as save and invest for financial freedom. Is your spending aligned with your values and priorities? Where is your extra cash going each month? Are you investing this money wisely and with purpose?

Step 3: Make your money work for you. Once you have money to save and invest, you can create passive income. Having a consistent and secure income stream outside of your regular job is key for financial freedom. Owning rental properties is a wonderful source of passive income, but this typically requires a large upfront investment that you may not have right now. Another way to generate passive income is through income investing. If you are a novice to investing, get advice from a professional or start reading business publications. It’s not rocket science, but you need to know what you are doing.

Most people are afraid to make mistakes, so instead of doing something with their money; it sits in cash for years and is slowly eroded by account fees and inflation.
If you have not yet started on your journey to financial freedom, try not to feel overwhelmed. Focus on taking one step at a time, and your hard work now will pay off. And if you don’t know how to start, work with a professional financial planner or speak with friends that are already making strides to financial freedom.

Katy lives with her husband and two young children in Mill Valley. Visit her online at www.katysong.com, or contact her at katy@katysong.com