The Foundations of Financial Freedom

The goal of financial independence is freedom and control. The money itself isn’t that important, it’s the freedom it buys by allowing you to optimize for fulfillment, happiness and satisfaction. Sounds great, right? But when you bring up financial independence, most people usually give one of the following responses:

  • Well, duh, everyone wants that, but I never could because I don’t make enough/I have kids/I live in an expensive area/l owe a lot/life is unfair.
  • That’s only for rich, privileged, insufferable jerks.
  • Why would I want to quit working? I love my work.

While it’s true those in the FI movement can be a bit insufferable (who me?), it’s not only for rich jerks. I think it’s attainable for the majority of those living in a developed country who make a living wage. But let’s be clear — it is for those among us who are privileged enough to have surplus income, good health and basic safety. We are extremely lucky to have these choices available.

The steps below outline how most of us, if we break through the “yeah buts…” excuses and habits of mindless consumption, can reach financial independence. You must be willing to make tradeoffs. And for those who love to work—I agree. I love to work, too. I love to create and help others. But I don’t want to be forced to trade my life’s energy for a job on someone else’s terms, if I can take steps to prevent it.

Here are the five foundations of financial freedom, satisfied-ghost style:

Pay attention. 

This is the foundation of all of our work. Financial freedom isn’t so much about saving for a specific number — it’s more about gaining clarity on your values and how you want to live your life.

When you buy something, what purpose does it serve? Is it a reward for working so hard? Is it because people “like” you buy things like this? Or is it because it makes you truly happy and you can afford it?

In mindfulness, we pay attention to the now by focusing on our breath. With a questioning mind, we come back again and again to the reality of our experience. The goal is to do away with illusion and gain peace by embracing the true nature of things. Similarly in this step for financial independence, we face that we trade our “now” —our precious and finite hours and life energy — for money. Once our basic survival needs are met, what do we really value? How many hours are we willing to give to buy what we buy? Just by paying attention and releasing the illusions  that distract us, we can make the right choices and align our actions with our deepest values. Start by tracking everything you spend and make for one month to see patterns. I recommend a tool like Personal Capital or Mint. Ask these questions, pay attention to how you feel with the answers.

Spend much less than you make.

So we now are mindfully tracking our spending, and making decisions from a grounded position. Most investment pundits recommend saving 15% of your income for retirement. But if you want to retire early, you have to do better than that. You should be saving at least 25 percent of all income if you want to build real wealth. Pay yourself first and then adjust. Does that mean you may go without things like a new car? Cable? Eating out for lunch? Buying new clothes? Yes! Most people could save if they adjusted their spending to forego luxuries that many now assume are necessities. Does it mean you or your children can’t pick a school that will result in massive amounts of debt? Yes. Does it mean you may need to move to a lower cost of living area? Probably.

I know this can be difficult in our culture or consumption. It can be nearly impossible for those struggling on small incomes. This isn’t about shaming those who don’t make a living wage. There are huge issues of inequality in our world that I fear are getting worse. But let’s assume if you’re reading this, you probably 1. have an income with surplus and 2. question the over-consumption mindless defaults of our society. The first step toward financial awakening, like the first step of spiritual awakening, is bringing sustained focus and awareness to our experience. Just setting an intention to spend less did wonders for my savings rate. If you automatically transfer the money to yourself the savings will quickly multiply. Saving and questioning spending became a habit.

Now you have awareness of your pre-Satisfied Ghost saving rate (including all retirement savings), resolve to improve it by a percentage or more for just one month.

Invest your savings in low fee index funds automatically and intentionally.

We will take more about asset allocation in future posts, but the key is to start investing today. Transfer money from your checking accounts to a brokerage or money market account that you can’t immediately access. I use Capital One 360 for my emergency fund for instance which now pays 1 percent interest; a far cry from the .05 of my bank account. Set up an automatic transfer and investment into a total stock market index fund (VTSMX) or a target date fund (VTTHX).

“Paying yourself first” is the most direct way to building wealth out of a normal income. Automatically transfer to savings before you spend anything else. This is how many generate wealth through 401k plans if you have one, but most don’t take the step of transferring and investing non-“retirement” savings. Beat the average and do it. Tell yourself you can always get the money back if you need by the end of the month, but you’ll be surprised when you don’t. Set up that automatic transfer and put even a tiny amount in an investment vehicle.

Gain clarity of your goal.

Without understanding, financial freedom can seem overwhelming and unattainable. The biggest impediment to financial independence? Not having clarity of the numbers required for financial independence and the trade-offs made with lifestyle inflation. I honestly believe that if more people gained awareness and clarity, our world would change. The financial advisors and firms continue to misinform people about the basics of retiring, causing people to feel defeated before they even start. (Read my post on how retirement calculators are wrong.)

The math to early retirement is simple. You can spend 4 percent of invested savings per year with a high probability of never running out of money. So by keeping expenses in check not only can you save more, but the total nest egg you need for financial independence (FI) will be much more attainable.

Let’s use some real (albeit simplified) numbers: if you make $90,000 and spend all of it, you will need $2,250,000 in investable assets to support that level of spending.

If you lower your spending to $50,000 you “only” need to save $1,250,000. Much more doable. In fact, if you save and invest that $40,000 every year, you will achieve your goal in 17 years. This assumes you never get a raise and your investments return 8 percent.

Every time you get a raise, save it. Every time you get a bonus, save it. Every time you make money from a side hustle, save it. If you keep your expenses in check, not only are you saving more, you are keeping your goal lower and more unattainable. Take time to really understand these numbers, set a realistic goal and then track it monthly.

Tune out the noise and tune up the gratitude. 

In mindfulness we cultivate awareness of the present by focusing on the breath. As our mind wanders we continue to come back to our goal: staying present in this moment and seeing what arises. In your search for financial freedom, you similarly need to focus and keep coming back to your goal. That means tuning out comparison with others who buy new cars or fancier houses. Tuning out gyrations in the stock market that make you want to sell your investments. Tuning out opportunities that may tantalize you with more money or status, yet don’t ultimately improve your goal of happiness, financial freedom and personal satisfaction.

For me I wanted to have more time and space to write, have emotional energy to really be present for my two kids, and do things at my own pace in keeping with my values. That meant leaving a great job with great pay, benefits and status. I struggled with this decision for years, but my practice of mindfulness ultimately helped me make the leap. Of course I was lucky to have that great job, which helped me retire early, but my industry is full of people who make far more than I ever did who “must work” for a host of reasons, needing money for survival not one of them.

It’s also important to tun up the gratitude. Move your attitude from expectation to appreciation. I keep a gratitude journal where I count my many blessings.

In future posts I will unpack each step with my personal tips on how to achieve FI mindfully. If you’re interested, read more about the origin of the Satisfied Ghost.

About Satisfied Ghost

I’m the Chief Ghost at Satisfied Ghost, a blog tackling financial independence mindfully.

2 comments on “The Foundations of Financial Freedom

  1. “Tune out the noise and tune up the gratitude. ”

    We could all do better by being more grateful. So true!

    I love this article and all the intentional thought and analysis that went into it. By living intentionally we could all stand to gain a lot and do away with all the “yeah buts”.

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