True financial freedom

A friend and I were discussing money and financial freedom, amongst other things in life.

“How much is enough money to be financially free? How do you decide?” I asked my friend.

Is it a fixed number? The ability to not work for money and have enough of it to pay all your bills through your lifetime? Is it 30 times your annual expense? 50 times? Having a good part of it in inflation beating investments? Or having a business that has good free cashflow and longevity?

While we seemed to have slightly different idea of what true financial independence is, we both had the same underlying opinion:

  • having very little money makes life harder
  • upto a limit*, more money gives you more control over life
  • once your limit is reached, more and more money has lesser meaning
    * that limit is sometimes referred to as f**k-you money, a limit beyond which you really don’t care about money

Does having enough money make you truly free? I’ve been thinking, of late.

Say, 30 times (or 50, suit yourself) your annual expense is your f-you money limit. When you have it and invest it in inflation beating investments – it will cover almost all of your expenses in life (not talking about jingbang lifestyle here!). Now, would that make you financially free inside?

On an excel sheet, yes!

However, I don’t think it makes someone feel secure just because they reached their f-you money. That kind of security actually comes from something else!

To explain that, I need to dig into insecurity.

I have a few things I would like to avoid in life. The prominent ones are:

  1. loss of a loved one
  2. loss of health
  3. a financially strained condition
  4. dying without doing something ‘satisfying’ in life

While you could be careful about these things, they are not entirely in your control. Random things can happen out of the blue any time and uproot your plans. I lost my brother when he was young and there was nothing my parents could do about it – it just happened. How do you deal with it? Can you prevent it? Not beyond a limit.

There is no guarantee that undesirable things won’t happen in life. How do you prepare for it then?

You could be careful and help your loved ones be careful in life, take care of your health, take control of your finances, etc. But they are all measures that give you a superficial sense of security.

The best way to handle it is perhaps to have this kind of confidence:

No matter what happens, I know life will go on and I will sail through. It might be uncomfortable, but I can handle it. I might screw up a bit, but I will handle it.

Beyond that, there is no real security – the rest is all superficial sense of security.

True freedom can only come from the confidence that you can handle anything, no matter how worse things get in life.

When you know you can handle the worst that life can throw at you, you are free!

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