Financial Freedom – Part 1

Dividend Geek • March 27, 2014 • 0 Comments

Financial freedom or ‘FI’ the acronym for financial independence that is commonly used in the dividend growth investing blogshere, has been on my mind a lot lately. People have various definitions of FI or ideas of what this means to them. To me I have boiled it down to this: “Financial independence is when your non-work income (passive income) meets or exceeds your expenses.” When this happens you no longer have to work for your income and have the freedom to choose how you spend your time.

In the Dividend Geek model of dividend growth investing we establish that through the shear power of compound interest (in this case dividends) and dividend growth over a long period of time (30 years) you will generate large amounts of passive income that should easily exceed your expenses. But what if you don’t have 30 years to invest, or you would like to achieve FI earlier. Is this possible?

Can the middle class wage earner achieve financial independence?

The answer is…

Can you reach FI much earlier in life then the stereotypical industrial revolution age of 65?

The answer is YES again!

But before we dive into the how-to’s we need to take a step back and decide on what we value the most. There are many people with average incomes who through modest fugal living have achieved financial independence. Likewise, there are scorns of countless celebrities and professional athletes who have multimillion dollar annual incomes that have filed bankruptcy and to this day are broke and in debt. It makes me scratch my head and think – how can this be?

Money is a very relative thing. It is not about how much you make as it is how much you keep. It is all too easy for your expenses to rise to the level of your income, or above your income. It happens all the time, you get a raise at work only to find at the end of the year you don’t have any of that raise left over to save.

I was driving my teenage Daughter home from her work the other day and I thought I would strike up a thought provoking conversation, so I asked her “let’s say you had $100 in your pocket right now. What would be the most important thing that you could buy with that money? She thought about this for a little while all the things she came up with involved spending the money, the most prudent was filling up the gas tank which was getting low.

Then I told her the most important thing you can buy with money is your freedom.

You can spend that money on music, clothes or the latest gadget and it will be gone forever, or you could invest that $100 and it will pay you $5 a year for the rest of your life. You can make money work for you instead of you having to work for money. In then end you will spend your money on what you value, so rethink what you value the most and take that right turn and get on the road to freedom.

#1 Principle – Value Freedom

Billions of dollars in advertising are spent each year to convince you otherwise and part with your money. Don’t get caught up in this very powerful machine be aware of it always – and before you spend your money ask yourself: “is this the most important thing I can buy with my money?”

Once you value freedom you can then start to apply the simple formula to financial freedom, which is: