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is financial freedom worth it

Is Financial Freedom Worth It?

On your journey to financial independence or financial freedom, you might occasionally stop and ask yourself: is this really worth it? You’ll probably have to cut spending, become more frugal, and spend less money overall. Perhaps you’ll even have to cut out some of your favorite hobbies or vacation destinations.

So, is financial independence worth it? Financial freedom is worth the sacrifices you put in early on in the long run. Assuming you will reach at least the age of 75 and the average time it takes to achieve the financial freedom you can live at least half of your life free of worries about money.

In this article, I will discuss some ideas as they relate to financial independence. We’ll look at what it actually means to be financially independent and some pros and cons that come with living a frugal lifestyle for a large part of your younger years. Conclusively, I’ll also share some thoughts on the importance of financial independence.
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Why financial freedom may not be worth it

At first hand, the answer seems obvious: yes, of course, it is worth it. But let’s consider some other little known factors. Working and saving for financial independence only really pays off in the long run.

The more you restrict your money spending and freedom today the sooner you will have more of both in the future.

The fact is we can represent the balance between saving now and having more later on with simple regressive graph:

How long will it take to achieve financial independence? - Retire by 40

So, the real question becomes what is the right point in time to save the most amount of money to achieve financial freedom without sacrificing too much of the present. Fortunately, this question can be answered with math!

We can actually calculate the ideal savings that will have the single greatest impact on the years required for financial freedom. For the above graph, the ideal savings rate will be somewhere between 25-35% after which the time takes on a linear correlation.

You can calculate your own ideal savings rate given the circumstances using this handy graph by engaging-data. This way you can match exactly how much is worth saving to achieve financial freedom as soon as possible while still having a life worth living now 😉

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How do you define financial freedom?

If you look around the web you’ll find several different definitions of what it means to be financially independent. Those range from earning a fixed dollar amount every month to earning X multiples of your employment paycheck.

But I like to keep things simple.

And simply put, financial freedom is the point when your “passive” monthly income breaks even with your monthly expenses. At this point, you will be able to live solely off your investments.

Financial Independence covers expenses

The chart above shows the number of years it would take to become financially independent with an annual income of $50,000 and a savings rate of 60%. In year 11 your passive income would break even with your expenses.

Why is this point so significant? Well, it will probably be the first time in your life (except for your childhood) when your income and survival does not depend on having a job, satisfying your boss, working fixed hours, etc.

Aside from the psychological aspects, it is also significant financially because it allows you to invest any “excess” income above your living expenses directly towards your passive cash flow. This way you create a kind of positive feedback loop and have quite literally broken the cycle, the rat race or the wheel (thanks Dany!).

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The Pros & Cons of Financial Freedom

So, in order to find out if financial freedom is actually worth it, let’s have a look at some of the pros and cons that come to mind. Hopefully, these will give you a better idea of whether it is worth it to you:

What makes financial freedom worth it

While it might seem obvious that the pros outweigh the cons when it comes to financial independence I think it still makes sense to list them one by one. This way you’ll get a good overview and reminder of what you are working towards.

Pool, Swimming, Swimming Pool, Relaxing, Relaxation
Financial freedom will give you control over your time
  • No Job: The most apparent benefit (at least for everyone who dislikes employed work – like me) is that there is no need for a job. You can escape the 9 to 5. Tell your boss farewell.

    By quitting your job you may find that you still like to work. However, now you can dedicate all the energy towards your own projects and at your own pace. Many people – including myself – find much more enjoyment in pursuing a project which is driven by an intrinsic motivation to create rather than the need for a paycheck.
  • More Time: Since you will not be working full time at some office, there’ll be a lot more hours in the day to spend with family, friends, and loved ones. Maybe learn how to surf. Or how about a sailing trip around the world. Just some ideas!

    Not only will you have more time overall, but the time you have can also be allocated to your liking. Think of it this way: before you have been trading your time for money. Now it is up to you to use your time and build the life you want.
  • Psychological Independence: With the sense of control over your time and life will likely come (after the initial shock) psychological independence. What I mean by that is that you will be faced with taking responsibility for your actions and decisions. There is no back up now, no manager to turn to, no one else to take the blame.
  • Security: Being financially independent will give you peace of mind and financial security. There will be no need to worry if and when that next paycheck comes in. You will not have to worry about losing your job.

    Typically people think of a 9 to 5 job as the safest option financially. However, in my opinion, this could not be further from the truth. Being self-employed or simply managing your investments gives you total control of your finances. This means that when are starting to look sour, you can actually do something about it! That to me is security.

What makes financial freedom not worth it

When I first started writing this article I thought: how can there be any cons to financial independence? Isn’t financial independence always worth it? Well, the more I thought about it, there are some downsides you will likely have to deal with once you’re on this path:

  • Cutting Back: The most obvious one is that you will be living as frugally as possible and cutting back on some non-essential expenses. You may decide to cancel that tennis club membership or start brewing your coffee at home instead of popping into Starbucks every morning.

    However, I find that with your goal in mind, cutting back becomes a lot easier. It can even become kind of fun to see how many things you can actually cut out of your life without missing them.
  • Loss of Youth: There is an argument for the fact that you will be “wasting your best years” living frugally instead of enjoying your younger years as much as you can.

    The solution here is to strike a balance that feels right to you. For me personally, I can easily dispense of that overpriced coffee (mostly because I don’t drink coffee anyway). But taking away all travel and vacation but be rather devastating. This way everybody has to find their own balance of what deserves a place in their lives.

    If we take a look at the graph towards financial independence, it illustrates quite nicely how your savings rate impacts the years it will take to retire.
  • Loss of Structure: The last point I do want to mention because it comes up occasionally is that the loss of a job can also imply a loss of structure and social contacts. Plus, many of your friends may still be “stuck” at their jobs and unavailable during the day.

    And this is true. It takes a sustained pro-active approach to fill the gaps in your life that a job once filled. It takes time and effort to follow up on those social contacts neglected. Nonetheless, once accustomed to, I believe this lifestyle to be far more fulfilling than any job.

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So, is financial independence worth it? This is a question only you can answer for yourself.

For me, the answer is a resounding “YES”. Not having a job, being in control of your finances and of your own time far outweighs any sacrifices I may have to make in the short term. I find that over time, working towards this goal also shifts your perspective: anything you thought you needed to buy before becomes less relevant and necessary.

What are your thoughts on this? Is financial independence worth it to you?

Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

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1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!

2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.

5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

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