Definition of Financial Freedom

Most people desire financial freedom because it allows them to maintain their lifestyles with little or no further work. There are many ways to become financially free, and two conditions that define financial freedom.


When someone is referred to as being "financially free", it often means the person has significant savings or income, and thus has peace of mind and the satisfaction of being able to do what one wants when he or she wants to do it. Financial freedom contributes to a greater sense of overall freedom – being able to enjoy and live life on one's own terms. When people are under financial pressure, they often experience stress, worry, and impaired relationships. Financial freedom reduces or eliminates those negative consequences.

Types of Financial Freedom

Total Financial Freedom means not having to work, and can come in two forms: 1) High Net Worth - A high net worth individual has sufficient money in savings and investments to maintain his or her lifestyle without working, or working very little. The term "high" is relative since people choose different lifestyles. 2) Residual Income - A person with residual income, such as a music recording artist or book publisher, will usually receive royalties when people purchase their products. These royalties can provide income for years and even decades, allowing the creator to have freedom to pursue other activities while still receiving an income. Debt-Free Financial Freedom means having no debt, and being able to live on very little income relative to people who do have debt and live the same lifestyle. This enables the debt-free person to save rapidly for retirement, enjoy a few more luxuries, or reduce their workload. Being debt-free includes no credit card, loan, or mortgage debt. Some people may consider investment debt (mortgage on a rental property, for example) to be acceptable debt, while others do not.


Many people think that being able to spend money freely is financial freedom. This often leads to financial entrapment, significant debt, and financial worry - sometimes leading to bankruptcy. Having a plan for your spending will more often lead to financial freedom than purchasing a lot of "stuff." The "stuff" mentality is fed by a desire for immediate gratification and wanting to have things now rather than saving for them, which will eventually cause problems. Those who save for their purchases will not pay interest on those purchases, and will be able to achieve financial freedom much faster as a result.


Financial freedom only comes from spending less than you earn. Your income can come from any source, including a job, a business, investments, royalties, and other means. Most people who have achieved large financial success have owned their own businesses or have been executives in companies. You do not have to own a business to become financially free, but it will require more focus and planning for you to get there if you don't. Start as early as you can to save and invest and get wise counsel for managing your money. Dave Ramsey's Financial Peace University is an excellent and well-recognized resource for sound financial planning and management.

Achieving Financial Freedom

Regardless of how you define financial freedom for yourself, there are several things you can do to achieve it: 1) Spend less than you earn and do so for a long time. Budget. 2) Avoid debt. Plan for big (and little) expenses and get rid of credit cards. 3) Establish a savings and investment plan. Look out for your future. 4) Give. What goes around, comes around.