How would you define the word freedom? By definition, freedom is the power or right to act, speak, or think as one wants without hindrance or restraint; it is the state of not being imprisoned or enslaved. Throughout human history, people have fought for their freedom and many have lost their lives fighting for it. William Wallace fought the English for Scottish independence with the goal that the Scots would decide what they want to do in their own country. While many reasons have caused the War of 1812, the simplified reason was the colonists wanted to have the freedom to govern themselves, instead of having to listen to the British government. If you look at a more recent event like the Tiananmen Square protects of 1989, the young Chinese students were protesting to gain their freedom of the press and freedom of speech. Hundreds to thousands of these young students were killed and many more were wounded during this protest.
Freedom of speech and freedom to decide are very important rights. So important that many were willing to die for these rights.
Financial freedom is perhaps just as important as freedom of speech and freedom to decide. Without financial freedom, you're limiting yourself in many things in life.
How many have fought for financial freedom/independence?
Retiring at age of 65 or more is a generally accepted idea today. We are taught to follow a standard life path - study hard when we're in school, graduate with good grades, get a good and stable job, don't question the authorities, work for 30-40 years, retire at the golden age of 65 or more, and finally enjoy the fruits of our labour. If we make it till then.
Because this life path seems to be the universally accepted norm, we follow this path and just try to get to the next milestone. When we are young we go to school to get a good education so we can graduate and find a good job. Once we're in our adult years, we wake up everyday knowing exactly what we must do. Every week for 5 days straight we wake up, get dressed, eat, commute to work, work for 8 hours or more, commute back home, eat dinner, spend some quality time with our close ones (some don't do that and mindlessly watch TV instead 🙂 ), go to bed, wake up the next day and repeat the process. Then on the two special days of the week called the weekend, we finally have the freedom to break away from our daily work routine. On these two special days, we get to decide for ourselves what we want to do with our own time. Shockingly, many of us just follow a weekend routing by watching TV for hours, playing video games for hours, wondering mindlessly in shopping malls for hours, or trying to triumph or impress their neighbours by purchasing unnecessary things.
Does it make sense to go through 40 years of your life working 9-5 and doing the same daily routine?
Justin at Root of Good recently shared his version of the early retiree's weekly schedule. He summarized that on a weekly basis he's spending 33.5 hours on fun, 7.5 hours on social, 18 hours on physical activity, and only 13 hours on "work." His definition of work in his early retirement schedule was very loosely defined. 🙂
Sounds like a pretty awesome weekly schedule to me!
When Justin was working full time, he spent a lot more hours "working" and not so many hours on fun and social. Although he only worked for 8 hours each day, he actually spent more hours in the "work" category. It was such eye opener for me to see the schedule breakdown between the two different scenarios.
If I had to construct my version of early retiree's schedule today, it would probably look something like this:
This is just what I have in mind right now and it probably needs to be optimized some what if I were to become an early retiree today. The theme here is that the amount of hours spent on work will be greatly reduced. Please note, the term work is very loosely defined here. Another thing to note is that the amount of time spend on physical activities is greatly increased. This will definitely allow me to optimize my overall health even more.
Someone I know from work recently retired. This person is in her late 50's and the retirement announcement came as a surprise to everyone. I thought it was fabulous that she could retire early. It was unfortunate that I couldn't discuss with her what her retirement plans are. I was also wondering if she is one of those secret frugal people who have socked up a nice investment portfolio. As expected, there were many water cooler and lunch conversations about this person's retirement. Interestingly, some of my co-workers made comments that they'd get bored if they were to retire early. Some commented they would just sit on the couch all day watching TV, some even commented that they probably wouldn't have enough money if they retire that early...
Many people have the word "retirement" propped up on a pedestal. Retirement is the ultimate dream, it means freedom of not working, freedom from the daily routines, freedom from the norm. They feel that they would never achieve happiness until they reach retirement. So they suck it up, continue the daily grind, and hope to make it to the that magical day when they can retire.
When they finally do retire, they cannot free themselves from their 40 years of working identity. They find out that they have not found the happiness they were imagining while in their working years. Retirement turns out to be something completely different than what they had in mind. They are unable to free themselves. Without the normal daily routine that they have gotten so used to for the past 40 years, they are completely lost. They don't know what to do and what to think. Slowly these people go into a downward spiral. Their health starts to deteriorate, their mental state starts to degrade, and they begin to loose any ambitions they have in life.
No wonder a number of people kick the can a few years after retiring from their jobs!
This is far off to my idea of
retirement financial freedom.
(Note: I don't like using the word retirement, I like the term "financial freedom" better.)
To me, financial freedom means having choices and options. It means I have multiple options on what I want to do for the day and what I want to do with my life. I have the option to determine whether I want to continue the 9-5 job. Because I'm financially independent, I am no longer relying on the job for the sole purpose of income. I have choices of when and where I want to travel and how long I want to travel for. I no longer have to request vacation time and wait to get an approval. I am free. Financial freedom means Mr. T and I can pack up our suitcases, go to the airport, jump on a plane to an unknown destination, and just let everything unfold. I guess we need to arrange a cat sitter for T Cat and we should probably bring Baby T with us too.
Look around, how many people are doing something about their financial freedom/independence? Only less than 30% of Canadians are contributing to their RRSP. Although the participation rate for TFSA is much higher, many people only hold GIC or cash in their TFSA's, effectively losing purchasing power as time goes by. These people also think that they can rely on Old Age Security (OAS) and Canadian Pension Plan (CPP) as major contributor to their post retirement income. So they continue their daily routines, and punch in and out of their 9-5 jobs. Can they truly reach financial freedom when they retire at 65 by relying heavily on social benefits?
I believe these people are not fighting for their financial freedom. They are only fighting to continue the norm. Maybe because they don't know any better. When they hear something outside of the norm like someone "retiring early" or someone having a strategy to reach financial independence, these people feel uncomfortable. They begin asking a lot of questions, maybe even feeling left out.
How do you fight for financial freedom?
First, stop thinking like the majority of people in our society. Start thinking differently and approach your life differently.
Second, pay yourself first. Allocate a certain percentage of income towards investing. 10% is a good start but the higher the better.
If you have any debt, draw up a plan on how to eliminate them. Consumer debt and student debt should be the first ones to go. Although mortgage debt are generally considered a good debt, you want to eliminate this debt as quickly as you can. It makes no sense to start investing your money when you're paying high interest rates on your credit card debt. By reducing your credit card debt at 19.9% interest rate, you're effectively getting a 19.9% investment return. It's tough finding that kind of consistent return in the equity markets.
Learn about the different investing strategies, whether it's passive investing through index EFT's, dividend growth investing, or something else. Then start investing and stick with this strategy. Don't jump around different strategies because you will get nowhere. A big piece of fighting for financial freedom lies on learning how to invest and how to become tax efficient. Maximizing tax efficiency means learning to maximize all tax-sheltered and tax-deferred accounts like TFSA and RRSP first before investing in regular taxable accounts. We all should pay taxes, but we should also find a way to be tax efficient and optimize our income tax.
Being frugal comes into place next. Optimizing your expenses is an absolute step in fighting for financial freedom. Cutting down unnecessary spending or even eliminating expenses like cable subscription.
Learn about the different insurances and enroll in ones that you need. Term-life insurance is a good policy to have when you're starting a family and you're just starting on the financial independence journey. Once you accumulate enough assets later in life, you may not need life insurance anymore.
Explore different possible income streams and start diversifying your income streams. Having multiple income streams will allow you to eventually step away from the 9-5 work and focus on your own life.
Write up a will if you have a family. If you don't have one, you're letting the laws in the province or state you live in, make decisions for you when you're gone. If you have specific wishes, you need to specify them in your will.
Start tracking your savings rate, investment portfolio value, and net worth. All these numbers all become a performance matrix on how well you're doing on your financial independence journey.
Finally learn to stop caring about what others think about you. You can never please other people, so why waste your time worrying about how to please other people? Focus on yourself. Learn how to be happy and be content with your life. Once you stop caring what others think about you, you're freeing yourself from judgement of others. You're freeing yourself from self judgement. It is then you're winning the fight on financial freedom.
Are you fighting for your financial freedom?