A couple of posts ago, I wrote about how money keeps us on a leash. That is, the amount of money we have available can dictate how we are able to live our lives from day to day. The more money we have, the more things we can do and buy while the reverse is true when money is tight, so is our lifestyles.
You might have heard of the phrase ‘financial freedom’ or ‘financial independence’. Many people incorrectly assume that if one has a high income, then financial freedom is always a result.
Typical Example Of Not Being Financially Free
For example, a busy dentist will have a very high income so most folks will extrapolate that this professional has financial freedom. We have to look into such a case deeper in order to really see what is happening in terms of money.
However, this is not always the case. Although this dentist can afford a nice large house, nice cars, luxury vacations and live a pretty upscale lifestyle, he or she is not necessarily financially free.
What would happen if this dentist suddenly stopped seeing patients? What if this dentist lost the use of his or her hands? Or another question would be, what would happen to this dentist if he or she decided to stop working for three or more months? Would this person be able to maintain the same upscale lifestyle that he or she did before when his patient load was at maximum?
Obviously, the answers would be no. A sudden drop in dentistry income resulting from seeing no more patients would not make the upscale lifestyle affordable anymore, at least until the dentist decides to treat patients again.
So in this example with the dentist, this person is not financially free. The lifestyle that can be lived by the dentist is directionally proportional to the number of patients seen at the clinic. In a way, money still has this professional on a leash.
The true definition of financial freedom or financial independence is being able to do what on wants to do, whenever one wants. The dentist doesn’t really have this ability since he or she still depends on seeing patients.
Financial Freedom Involves Passive Income
True financial freedom therefore must involve a large enough source of passive income (which we’ll discuss in a future post) so that one does not have to work if one doesn’t want to. In these cases, a person can take off work for three or more months and still enjoy the same lifestyle without worrying about money due to enough passive income coming in all year round.
This is important to recognize. True financial freedom or financial independence does not always result from high income jobs. If one is still tied to a job, then one is not financially free.
We’ll go more into this in the future on how we can all move towards achieving financial freedom or financial independence, ie., not being dependent on traditional sources of financial income such as a job.
