Editor’s note: This article was first published in December 2016; the crisis it says pushed the middle class into poverty is the 2008 crisis and its aftermath in Spain, as seen at that time.
What does achieving financial freedom mean? Basically, it means that the money you receive “passively” can sustain your standard of living for the rest of your days; in other words, you have the right but not the obligation to work. Of course, if you look closely, people who achieve financial freedom don’t stop working, because for them work isn’t work.
In fact, if you’ve bought into the “I want to retire young and rich so I don’t have to work” line, in a previous article we explained why you’re unlikely to achieve financial freedom with that mindset.
Both wealth and financial freedom are within everyone’s reach. You just have to know how to get there. There’s no set path that is the same for everyone; each person will get there in a completely different way, and you don’t necessarily have to be a great entrepreneur to be financially free. That said, achieving financial freedom is more a matter of attitude and psychology than anything else.
And since it’s a matter of attitude, here are 8 signs that you’ll never achieve financial freedom unless you change.
Financial freedom isn’t for you
1. You think the richest person isn’t the one who earns the most but the one who needs to spend the least. That’s false
Mind you, that idea is only false up to a point. If someone struggles to make ends meet, they have two options: earn more money or spend less money. In fact, people who earn more don’t always end up richer than those who earn less, because if the higher earner blows everything they make…
Even so, saving is the first pillar of wealth creation (see: the 4 pillars of wealth creation). Obviously, if you earn more, you can save more, but saving on its own won’t make you wealthy. You need to focus on earning more money and never depend on a single source of income, because if that source disappears, you’d already be in trouble.
In other words, if you earn 1,000 euros a month, don’t turn on the heating, don’t get internet, don’t buy clothes and eat nothing but spaghetti, you’ll probably save more than 70% of your salary. But if you find a way to earn €2,000, you could save more money while still turning on the heating and eating a more balanced diet.
While the masses look for ways to save and live more frugally, a smaller percentage of people look for ways to create several income streams and make more money. That said, I’m not saying we should avoid the habit of saving, but rather that our strategy should be offensive (earning more money) and not defensive (saving money), because when we focus only on defence, sooner or later the goals end up going into our own net.
2. You keep the money you save
In terms of building wealth and pursuing financial freedom, there’s only one reason to save money: to invest it.
You don’t reach financial freedom through the money you earn each year or the amount you save, but through the money you invest and what you get back for it.
You can achieve the famous “make money while you sleep” promise, so often used to sell people smoke and mirrors, but to make money while you sleep you’ll have to sleep very little for a long time.
If you haven’t started investing your money, you’re not yet on the road to financial freedom. In fact, the way to measure the health of your personal finances is to look at how much money you’re receiving for your money without having to work for it.
How much am I getting in dividends from my shares? How much do I get from my book sales? And from my business? From… whatever it is? How much passive income do my assets bring in?
The sooner you start investing your money, the sooner you’ll reach your goal. Remember that compound interest is at play. Now… you might say: “But I don’t know anything about finance or investing in the stock market.” And that brings us to the next point.
3. You’re not acquiring knowledge
If you don’t like reading or learning, if you’d rather waste your time than make good use of it, if you’d rather get drunk at parties than drunk on knowledge, you’re heading in the opposite direction to financial freedom.
See also: 8 characteristics of people who will achieve financial freedom
Remember the famous Wall Street saying: “A fool and his money are soon parted.”
It doesn’t take much to learn the basics of how money works. Knowing the basic concepts and terms of investing in equities and fixed income will keep you from being fleeced one day.
Here we recommend some financial education books.
4. You buy things you can’t afford
We’ve already seen why an expensive car doesn’t impress smart people much. Remember: just because you can pay for something doesn’t mean you can afford it. Can you pay for a 600-euro dinner? Probably. Can you afford it? Probably not. Apply that thinking to plenty of other silly, unnecessary whims.
The media say that, as a result of the crisis, the middle class has become poor. Well, most of them weren’t middle class; they were the indebted class. Never use a rise in your income to justify a rise in your lifestyle, because the expenses of your new lifestyle can carry on while the income you had can stop.
5. You’re not paying yourself first
We wrote a whole article on this point, because many people misunderstand what paying yourself first means.
“Don’t save whatever money you haven’t spent at the end of the month. Instead, as soon as you get paid, set aside the money you’re going to put towards saving and investing, and what’s left over (once you’ve met your obligations) is what you can spend on treats and nights out.”
That way, we increase our capacity to save.
6. You don’t know what you spend your money on
Whether you run a business or work for someone else, the money you receive is your main business, so you should manage it like a business, knowing where the money goes.
In finance and in business, small leaks can sink big ships. Once we keep track of every cent that leaves our pocket, we can use many of the ways to save that we’ve already covered. See: 11 ideas for saving money that go beyond the standard advice.
7. You’re not pursuing your own goals. You have no goals
I’ve seen very talented people who weren’t clear about where they wanted to go, and as a result ended up going nowhere.
Many successful people have shared the same message: if you don’t chase your own dreams, you’ll probably end up helping to build someone else’s.
If you chase your dreams and set yourself goals, over time things may turn out well, badly or much better than you imagined, but studies say that throughout the time you spend pursuing your own goals, you’ll be happier. From a financial point of view, you increase your chances of earning more than average, because a trained mind in motion doesn’t stop at obstacles and always finds a way to reach its goal.
On the road to financial freedom, you’ll need the same ingredients as for success in business: habits, motivation, perseverance and resilience.
8. You don’t have a positive mind
The truth is that, outside the worlds of music and film, no embittered person has ever achieved anything. Success in any field has to do with the mind, and a negative, pessimistic, defeatist mind that always focuses on the bad will rarely bring you decent results in life.
That’s why, when we talk about financial freedom, wealth or business success, we should first focus on our own brain.
Featured image: Pelton, Public domain, via Wikimedia Commons.
