Financial Freedom Must Be Earned

Like most things in life, nothing comes for free, and hardly ever accessible.

To earn that precious financial freedom we all seek, some deliberate actions must be taken.

Since my ultimate goal is to increase the number of Freedom Years I get to enjoy, I have to make sure that my working years are as efficient as possible. This requires laser-like focus and determination around the following key areas:

  • Income / Maximize Money Coming In
  • Debt / Eliminate, Reduce and Avoid Money Pits
  • Expenses / Optimize How Money is Spent

Everyone's path to acquiring Freedom Years will be unique, but all must learn to conquer the crucial above focus areas to succeed in reaching it.

My Income Journey so far

Here's a snapshot of the income side of my equation. I wasn't always making a high income and had to work my way up to that level over many years of hard work and perseverance.

Pre-College Work

I started working as soon as I was legally permitted to, at the age of 16. My first job wasn't the most pleasant one, since I started in fast food, as many teenagers do. I was the cook at a popular fried chicken chain and made minimum wage working after school and weekends.

Although my parents both worked, they were not well off, so I needed the job to generate income for anything beyond the basics. I made $4,000 that first year. I continued to work through the remainder of high school and was by then determined to go to college so I could find a way to avoid the minimum wage trap.

College Work

Unfortunately, college wasn't the fun experience I had expected. Since I was the first in my family to go, I had no reference point and no guiding advice. The reason it wasn't fun, was because I found myself working close to 30 hours per week while taking on a full course load in a demanding program, which left no time for anything else.

Since I was paying my way through school, I wasn't about to waste my hard-earned money on a degree that didn't practically guarantee me a job. When selecting which degree to pursue, I first investigated who was being hired the most consistently, which at the time were Engineering students (I suspect this is still the case). Although I had intended to be an Architect initially or trying International Business, pragmatism won out, and I ended up with an Engineering degree.

To further secure a job at the time of graduation, I also spent every summer interning at various companies. This helped me both replenish funds for tuition and reinforce my resume. However, it was at the cost of expediency, so I graduated a couple of years later than I should have.

Post-College Work

My first job out of college paid $50K a year, which compared to all the part-time, and close to minimum wage work I had done up to that point was a small fortune. My timing, however, was not that great, as I graduated in the middle of the dot com crisis. Even though I had multiple offers before graduation, I found myself taking a reduction in force package only a year into that first job.

The experience taught me a precious life lesson about the contract between employer and employee. I was on my own and needed to look after myself. The seed was planted for self-reliance and the dangerous pursuit of true Financial Freedom.

Thankfully my internships paid off, and I was able to land a job immediately after at a company in a different industry. I have spent every year since then, taking on more responsibility and working my way up through the ranks. On average, I was able to increase my income by >10% a year, but those increases carried a price, such as restrictions on my time, high levels of stress, exhausting travel, and diminished health.

It's time to transition to some Freedom Years!

My Debt Journey so far

By the time I graduated from college, I had managed to reduce my debt exposure through all the part-time work and some student grants, but it still wasn't enough to escape unscathed. I graduated saddled with ~$30K in school loans (my wife had ~$65K), which in retrospect, could have been much worse. Still, the idea of owing money felt like a tremendous burden, which motivated me to land a well-paying job as quickly as possible.

My instinct to reject debt as much as possible kept me away from credit cards. Although I still used a few credit cards, I can proudly say that the credit card companies have been unable to extract a single penny from me in interest charges over the past couple of decades.

I'm not as proud to admit that I did have a soft spot for cars and wasted money taking out car loans over the years to the tune of ~$80K, spread out over multiple vehicles.

My wife and I have spent much of our discretionary income during the earlier years, steadily eliminating the debts above. Within less than ten years, we had squashed all of them.

This left the monster of all debts, our mortgage, which we managed to also eliminate in only seven years. You can read more about why I think everyone should get rid of their mortgage as soon as they can.

This all sounds easy when written in a few sentences, but it took many years of sacrifice and compromises to reach that level of debt elimination. We didn't need to put that kind of pressure on our finances, and our lifestyle could have been much fancier. However, we chose to prioritize our ultimate Freedom over useless consumption.

My Expenses Journey so far

Although it took me a few years to refine my money habits, it was clear that my instincts leaned towards frugality. The relative value of a dollar is much more important to me than a fixed cost, so I don't equate frugality with penny-pinching.

Rather than fight those instincts, I embraced them happily. Anyone that thinks they can reach true Freedom without focusing on expenses will be sorely disappointed.

If you can minimize and effectively cap your yearly expense burden, you can reach your Freedom years much sooner. Our total expenses have averaged about $50-60K per year, and have stayed flat over the past ten years, regardless of considerable income increases.

This is the yearly expense budget I'm targeting to maintain, despite paying off the mortgage. The mortgage expense will now go to funding travel.

Capping expenses over the years despite income increases have enabled me to go from a 20% savings rate to a >70% savings rate. If that can be maintained over the next few years, it should serve as a significant tailwind to accumulate more Freedom Years.

In Summary

The primary focus over the past 15-20 years has been to maximize Cash Flow.

[Income – Debt – Expenses = Cash Flow]

The more you can increase your income and reduce your debt and expenses, the higher your cash flow. That cash is the key to freedom. It needs to grow to the point where it's no longer just a pile of money under the mattress, but an active partner in your quest to earn freedom.

At some point, that cash will be significant enough to be invested, and when it starts generating its sources of income, you're that much closer to freedom.

[Cash Flow => Investments => Passive Income => Freedom]

When it finally starts to cover your living and preferred lifestyle expenses, without losing its original size, you can formally claim Financial Independence.





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