Let’s talk about financial freedom. What it means. What it represents. Why it is so incredibly powerful. Ever since my husband and I got married, almost 9 years ago, we have always felt a common thread with regard to our long term finances:
The desire to be financially independent: Not having to work.
There is something incredibly powerful and liberating about financial freedom. It is being completely free to do whatever you want. You do not have to clock in, you do not have to answer to anyone, you can just do what your soul desires. What a beautiful thing. Luckily, my husband and I are both frugal by nature, and equally passionate about early retirement, so that has been a blessing.
I think there are 5 main reasons why we are pacing for early retirement (our current goal is age 50). Our financial prudence started in our early twenties, which was a decade ago. I love sharing about our journey and our choices because we have never made crazy money. We have just committed to making sound financial decisions within our budget.
Here are the five things we’ve done, and continue to do, that keep us on the straight and narrow towards financial freedom:
1. Invest Early
This move was huge. We started putting money into our 401ks once we started working after college. Those initial years of investing are already starting to show the value of compounding interest. The most we have ever invested in retirement is 15%, and the least we have invested is 9% (our current rate, hello parenthood!) We turned the “investing faucet” on early, and we never turned it off. We have had to dial back our Roth IRA investing, but we knew that if we turned the faucet off completely, the likelihood that it would come back on was slim.
Our advice: Start investing in retirement as SOON as possible. Turn the faucet on, and do not turn it off. Compounding interest is incredible (here is a simple calculator to try out some scenarios for yourself).
Watch out for: It is easy to want to turn retirement funding off for a bonus payment or that side hustle, but the higher percentage you invest of your total income, the better off you will be.
2. Buy Affordable Housing
We have purchased two homes in our life, one in 2009 and one in 2012. The market had bottomed out. We bought our homes for cheap, which was lucky. But, one thing remains true: we bought within our means. Some would argue we bought below our means. And I love that. This is why our mortgage balance is going to break by $80k this year. We were frugal with our house budget and now we aren’t drowning in a huge mortgage.
Our advice: Buy within your means. Do not try to keep up with the Joneses. Do what makes sense for you and your life. Also, try to air on the side of less square footage. A smaller home means less to clean, maintain, repair, store, and did I mention clean?! You might also be able to move to a nicer neighborhood or a better school district if all of your dollars aren’t going towards square footage. Plus it forces you to be intentional about what you own #intentionalism.
Watch out for: Exciting Offers!! Being a homeowner, with even a little bit of equity, means you have options. You will get letters from people wanting to buy your house for cash, or from your lender giving you ALL that equity in exchange for a new mortgage with the same monthly payment. Don’t kick the can to your future self!
3. Pay Cash For Cars
The most we have ever spent on a car is $13,000. And that was on our most recent car purchase, a used 2015 Honda Fit. Cars can be a huge burden on your finances, especially if you have fixed payments. Paying cash means you completely own your car from day one. That is incredibly freeing. And we’re all about freedom over here.
Our advice: Pay cash for your car, and buy a car you can afford. Getting overextended in a car is not where you want to be. I know a Honda Fit is not flashy, but it gets us from A to B. And that’s really what counts.
Watch out for: Car envy! It is real. Every year cars are newer and “better”. You will see your friends and neighbors with new cars and can trick yourself into thinking you need one because of better fuel economy or better safety. You probably don’t need it. Eventually, all cars need to be replaced, but you probably aren’t there.
4. Pay Off Your Mortgage
A few years ago, we converted to a 15-year mortgage. This made sense to do because the rates were low, and we were also able to get rid of PMI at the time we refinanced. Win, win. Converting to a 15-year put us on a path to have our mortgage paid off just north of age 40. We were making extra payments a few years ago, stopped when our first child was born, but can hopefully resume this practice to ensure our mortgage is GONE by age 40.
Our advice: No sage advice here, just that a paid-off mortgage is required if you want to be 100% debt-free. We have pined for and planned for this status for a long time, and we want to see it come to fruition. I mean, how cool would it be to not have a mortgage? This goal has been a commonly shared goal for over a decade. It is really important to us, and it feels like it represents the CORE of what we stand for in our financial principles.
Watch out for: “Pay a 30-year mortgage like a 15-year mortgage”. The advice to get a 30-year mortgage but just pay double is common advice and sounds like a great safety net, but we can tell you from experience that paying extra is only easy when it is easy. The willpower to keep that going is incredibly tough, especially after taking even a month or two breaks.
5. Use Credit Cards Responsibly
We have always used a credit card to pay for our everyday expenses because we like getting credit card points and then redeeming them for cash. But, we always pay our cards off. We never carry a balance. I think credit cards can be dangerous, but they can also be a great tool if used correctly (read: rewards points and the ability to float a purchase while you move cash around).
Our Advice: Be careful with credit cards. They are the most crippling debt you can have.
Watch out for: Yourself. If you have had trouble with credit cards before or feel like they are something more than a small step between your purchase and your checking account, consider cutting them up and staying away.
That about sums it up. Pay cash for your car, invest early and forever, buy affordable housing, and use credit responsibly. No magic tricks, no crazy market strategy, just good ol’ fashion self-restraint, and patience.
I think financial freedom is all about choices. Maybe we will want to work until we die, maybe we will want to totally change our careers, maybe we will want to take a sabbatical (or a second one! in my case). We don’t know exactly what the future will look like, but we DO know that we don’t want our current income holding us hostage to a job we no longer like or a city we don’t want to be in.
Financial freedom means different things to different people, and that’s ok! I hope the tips above have inspired you to pave YOUR unique path to freedom.