Is Financial Freedom Impossible?

by Kevin on September 23, 2009

There is an interesting discussion over at the Get Rich Slowly forums about financial freedom. Essentially the original post focuses on how following financial advice is impossible.

Here was the list of common financial advice the poster was dealing with:

  • Fund your 401(k) to the max employer match.
  • Max out Roth IRAs.
  • Save an additional 10% of your income in taxable accounts for retirement.
  • Set aside money for your childrens’ educations.
  • Build an emergency fund of 3-6 months of expenses.
  • Carry adequate insurance.
  • Stay out of debt, except for a mortgage.
  • Choose a 15-year fixed-rate mortgage equal to no more than 1/4 of your take-home pay.
  • Give 10% to charity.

I found the post to very interesting as this person went through a hypothetical situation and came to the conclusion that doing all of this was literally impossible.

I thought I would write a post addressin this. Perhaps you look at the list above and get the same feeling — that doing all the right financial steps is essentially impossible.

Personal Finance is Personal

The first thing I would mention to this person is that personal finance is personal. The above list of recommendations is a compilation of general advice thrown about in personal finance magazines and blogs.

But the above advice may not work for you. It may not fit your situation. Your employer may not offer a 401k match; you may never plan to have children and thus won’t need to save for their education.

So take a look at your life and decide what you want first. I always hammer on this, but you must have goals before you can do anything.

Once you have goals then you can apply the above advice to your own personal situation moving forward.

Financial Freedom is Hard

I will agree with this individual — personal finance is hard. As Dave Ramsey likes to say, you must live like no one else so you can live like no one else.

Every time I sit down to do our budget and spending I am reminded of this. We have a lot of money going into saving for various goals. We tithe to our church.

Giving up money today for future reward is not fun. Keeping your eye on the prize is absolutely critical.

But it can definitely be done. We’re doing it, and so can you.

Financial Freedom is Possible

I definitely believe achieving financial freedom is possible. I’ll show you how by using myself as an example.

Looking at the above advice this is what we are doing:We have a general idea of what kind of lifestyle we want to live when we retire. We plan to continue “working”, but in areas that we love. (Personal finance advising for me.) We’d like to have at least a million dollars, but the more the merrier. We would like to help our kids pay for their education, and we would like to be adequately insured.

To achieve this goal we are taking several steps to financial freedom:

  • We are fully funding two Roth IRAs to the tune of $10,000 per year ($5,000 per Roth IRA). Since we started young at age 24 time is definitely on our side. Assuming we earn a modest return of 7% per year after expenses we should have $2.46 million at age 66.
  • We are living on less than we earn — significantly less. A large chunk of our income is going toward saving every month.
  • I am contributing enough to get my employer’s pathetic match.
  • We are saving for future children’s education.
  • We have an emergency fund and a car replacement fund. We will pay cash for our next two vehicles.
  • We are adequately insured.
  • We are debt-free except for our mortgages. We will pay off our second mortgage in 2010.

How have we done it? We live debt-free except our mortgages. We don’t take extravagant trips without saving for them first. Our home isn’t cluttered with things we have purchased on credit.

I wouldn’t say we live a simple life, but compared to spendaholics we absolutely live a simple life. I’d say we live a regulated life — staying within our means and budget.

We’ve also kept our eye on the prize. We can’t wait to be completely debt-free including the mortgage. (Once we reach that stage I will definitely call into Dave Ramsey’s show to celebrate!) We’ve been able to supress those spending urges and instead focused on being able to live an incredible life later down the life.

Financial freedom is possible… but it is hard.

{ 4 comments }

Chris September 23, 2009 at 12:01 pm

I started getting caught up in the GRS thread, but wanted to comment here, too.

As you said, it’s important to have goals when savings, otherwise it’s too easy to get distracted.

I wonder how, now that we’re in this “new era of financial responsibility”, the millions of Americans with little or no savings will view this type of financial to-do list.

Jesse September 23, 2009 at 8:40 pm

You know, you said it in the post that personal finance is a personal thing. There may be tons of places talking about it, blogging about it and pushing the lists of recommendations and to do them all is impossible in my mind for certain income brackets but the thing is, you don’t have to do them, or all of them, like you said.

For me, some of these things aren’t important. Others are more important. The best thing to do is just make a plan and follow it. Doing nothing because it all feels overwhelming is not the best solution.

Kevin September 24, 2009 at 8:29 pm

EXACTLY! Get a plan, stick to plan, implement plan. Completely agree.

milkaveronica October 4, 2009 at 4:23 pm

It’s true we should have mad money for emergencies or retirement. Love this topic!

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