Over the past 20 years as a franchise coach I’ve worked with thousands of individuals. When I ask about objectives one term appears more often and any other. That term is ‘Financial Freedom’. It seems that everyone is pursuing financial freedom but when I ask individuals, ‘What does financial freedom mean to you?’, there is a lack of clarity. Many people define financial freedom as being ‘Rich’ or ‘Wealthy’. But are these terms the same? If you’re ‘Rich’ does that mean you’re ‘Wealthy’? If you’re ‘Wealthy’ does that guarantee ‘Financial Freedom’?
Are You Rich or Wealthy?
Let’s begin with the term ‘Rich’. What does it mean to be rich? In it’s simplest form, rich simply means you have a large income, big bank account and own lots of things. Being rich is a statement of a person’s current state of being. It lacks permanence. Just because you are rich today, does not ensure that you will be rich tomorrow.
So how does a ‘Rich’ differ from ‘Wealthy’? In many ways being wealthy is more encompassing than simply being rich. Being wealthy can include material possessions, but it can also include knowledge, relationships, connections, and purpose. I think we all know people who have led wealthy lives full of purpose but were never monetarily rich.
What About ‘Financial Freedom’?
First, I’d like to change the term from ‘Financial Freedom’ to ‘Financial Independence’. In so many ways financial independence is a better term in that it is more specific. Financial independence is the point in time where ‘earned income’ (income from work) is no longer required. It is the point in time when your annual passive income from your existing assets exceeds your annual expenses. Once you reach financial independence, working to earn money is no longer required – although you may continue to work because you enjoy it or the work provides purpose.
Interestingly, you don’t need to be rich or wealthy to be financially independent. I know many rich people who must continue to work to pay the bills. If they lose their job, they will quickly face financial hardship. These people are not financial independent. I also know individuals who are not rich but, due to their modest lifestyle and wise investments, are both wealthy and financially independent.
Clarity Is Important.
As you lay out your plans for 2022 and beyond, separate your thoughts regarding being ‘Rich’, ‘Wealthy’ and/or achieving ‘Financially Independence’. Each term is unique and deserves individual attention. The more clearly you know what you want, the more likely you will be able to attain it.