Sunday, July 5, 2009
The true meaning of financial freedom
By Dan Danford
Financial freedom isn't what most folks think. Most people think about debt, but I find that too narrow. Debt can be a problem for some people, and freeing those folks from debt can be a worthy goal (think Dave Ramsey!).
My definition is different. Freedom means options. Simply, to lack freedom means that you lack financial options. When the refrigerator breaks or the lawn mower dies, what are your options? Do you have to rely on a credit card, or can you write a check to pay? Maybe a department store is running a sale, and they offer additional discount for opening a credit account with them; is your credit good enough to make an instant application? It might be worth 10 to 20 percent off.
I know it's an American Dream to pay off the mortgage, but I like this even better: I could pay off my mortgage if I wanted, but I choose to keep it because it's a real good deal. Maybe, I have a large portfolio growing at 8 percent a year, and I don't want to use it to pay off a 5 percent mortgage. That's financial freedom.
This extends to other arenas, too. Say your job sucks. Education creates options. With a quality education, you don't have to stay with a job that sucks, you can find a better one. Or, maybe, you choose to stay with a lower-paying job because you like the hours, or the people, or the quality of life. Having a nice savings account creates that luxury.
I've been helping people financially for almost 30 years. Flexibility is a key factor in financial freedom. Flexibility means that you keep options open. You can make changes when you want and you have the ability to adjust to new and better things when they come along. When meeting with high school or college students, I always emphasize the same thing. More money means more freedom. It's as true at 50 as it is at 18.