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HOW WOULD YOU DEFINE financial freedom? That’s the intriguing question I’ve been asked twice in recent weeks by journalists curious about the new HumbleDollar book, My Money Journey: How 30 People Found Financial Freedom—And You Can Too.
Financial freedom is something that pretty much everybody wants, and yet there’s no agreed-upon definition. Still, I think most folks would focus on two key elements: time and money. But I don’t think it’s a simple matter of having lots of dollars and lots of free time. Instead, I believe financial freedom rests on two key pillars.
First, we can spend our days as we wish. Time is the ultimate limited resource, which is why things that waste time—think doing the taxes, sitting in traffic or waiting at the Department of Motor Vehicles—can be so infuriating.
For better or worse, none of us knows how much time we have. But we know that one day it’ll run out, so it’s crucial that we make the most of the days we’re given. To that end, we should spend our time with those we love and we should spend it doing the things we love.
If we love our job and we like our colleagues, we may not have achieved financial independence in the traditional “I never have to work another day in my life” sense. But, arguably, we’re pretty close: Not only do we get to do what we love, but also we get paid for doing it.
That brings me to a notably silly definition of retirement. Over the years, I’ve occasionally heard readers argue that if folks are still earning money, even if it’s from part-time work in their 60s or 70s, they aren’t truly retired. That, I think, is a dangerous mindset. Next thing you know, these readers may decide that doing anything that looks like work—paid or unpaid—is against the rules of retirement, and soon they’ve committed themselves to a dreary life of nothingness.
My contention: We all need a sense of purpose, whether we’re working or retired. The blessing of financial freedom is that we can choose our purpose, deciding to devote our days to activities that we’re passionate about and that we find fulfilling. That might mean doing volunteer work for our favorite charity, our place of worship or the local library. It might mean painting, writing, carpentry or gardening.
There’s great pleasure in working hard at activities we care deeply about—and, indeed, I believe it’s one of the three key elements of a happy life. What if these activities happen to pay a little money? You won’t find me complaining.
Second, we rarely worry about money. Many folks fret constantly about their finances—because they have to. They struggle to live within their means, so every expenditure, even if it’s intended to boost their happiness, often instead ends up boosting their stress level. And, no, this isn’t just an issue for those with low incomes.
That raises the age-old question: Does money buy happiness? If we’re struggling to afford life’s necessities, the answer is a resounding “yes.” If we can lift ourselves out of poverty, or do so with assistance from others, our happiness will be greatly improved. Throw in a few thousand dollars in a bank account, and we’ll also have a sense of financial security that’s crucial to peace of mind.
But once we’ve achieved some minimum standard of living and have some sense of financial security, happiness becomes less about our absolute level of income and wealth—and more about our relative standing. A recent study found that the higher our income rises, the happier we’re likely to be, with the gains in happiness becoming ever smaller with each incremental dollar. That suggests that our income relative to others is what matters.
I’m not suggesting the research is wrong, though I do think the results are likely skewed by what’s called a focusing illusion. In other words, when those who are better off are asked about their happiness, they think about their fortunate financial standing relative to others and that prompts them to say they’re happy. This is the power of gratitude at work.
Instead, I’d argue that the researchers are focusing on the wrong “relative.” True happiness doesn’t rest on how we stand relative to others—though those around us may influence our material desires. Rather, happiness hinges on how we stand relative to our individual wants and needs, something that’s much harder for researchers to measure.
If we earn great gobs of money but our desires regularly run ahead of our income, we’ll suffer enormous financial stress—because we’ll never feel like we have enough. To be sure, earning more or having more means we’re more likely to have sufficient money to cover our wants and needs, but there’s no guarantee that we’ll indeed feel like we have enough.
That brings us to another important notion. Yes, money can buy happiness. But more important, its absence—not having enough or feeling like we don’t have enough—can lead to great unhappiness.
Financial freedom isn’t a seven- or eight-figure portfolio balance. Instead, it’s knowing we have enough to pay for the life we want. It’s the ability to enjoy two great luxuries—spending our time as we wish and not having to think about money.
How would you define enough? Offer your thoughts in HumbleDollar’s Voices section.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier articles.
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As ever, Jonathan, your articles prompt deeply felt responses. To your observations I would add a third, (which likely says much about my experience). Having spent time “food and housing insecure” as the current jargon has it, to your two elements of financial freedom I add “stability”. Simply knowing where one will sleep and that one will eat today, tomorrow, and quite likely onward is priceless. Of course, the world turns; “time and chance happen to us all”. The key thing is the “quite likely onward” part. Being reasonably confident in my circumstances and ability to maintain my life is essential to me.
Good article Jonathan. I think the most important thing is what is our purpose? If we have a noble purpose that is not selfishly directed, then worrying about having enough is not as important.
Good article, with which I mostly agree. I do think there is a huge psychological component to “enough” – some people will never have enough. I agree that “enough” buys you the freedom to use your time as you see fit. Want to stay home with a book or three? Want to go out and volunteer? Want to go further and go round the world? All possible.
But in the words of the old commercial, freedom from worry: priceless. Knowing that, unless there is a black swan event, you will have a roof over your head, clothes on your back, food on the table and access to medical care for the foreseeable future puts you way ahead on Maslow’s hierarchy of needs. Coincidentally, I was just reading a NYT article on backyard mini-houses for the formerly homeless, and one beneficiary said: “When you’re tired with no safe place to rest, that’s the only thing you can think about.” In the words of the song: “There but for fortune….”
Several years ago, I read the book Material World: A Global Family Portrait by Peter Menzel. They went around the world and asked a representative family to remove all their home contents and display them for a photo. You can imagine some homes had very little, but the United States (a house in Texas) couldn’t even bring all their possessions out. They didn’t have enough time. Imagine someone asking you to remove all your contents for a photo. I digressed from “financial freedom” but in a lot of cases we do have enough stuff.
I’ve read Americans may own 200,000- 300,000 items, that’s quite staggering.
I worked for a property and casualty insurance company. The adjusters I talked to said they never paid less than the full amount of the contents coverage limit when there was a total loss on the house (fire, tornado, etc.). No one has enough contents coverage, and no one has a detailed inventory. That 200,000 to 300,000 number for items might be why.
Maybe that’s why State Farm wanted to insure the contents of my apartment for $300,000. Without asking me. I had to read the fine print to figure out why rental insurance was going to cost nearly as much as my house insurance. I had been with them for decades but I was so angry I switched to Erie.
The principle that you can spend your days as you wish has a flip side, and that flip side also works for the time before retirement. It is: Once you have financial freedom, you can also decide what you aren’t going to do, and you can act on it.
That may be obvious for retirement. But it also means that before retirement, you can actually vote with your feet if you want to. You can decide to leave a job that you dislike. You cannot be forced to undertake things that violate your principles. And you can walk away if someone buys your company and it changes, or if you feel topped out or underappreciated.
And best of all, if you can achieve financial freedom during your working life, you always know you have that option to walk away in your pocket, so it also delivers a good measure of spiritual freedom as well.
Seems to me there is a contradiction here.
You wrote (bold added):
>>>True happiness doesn’t rest on how we stand relative to others—though those around us may influence our material desires.<<<
….
>>>If we earn great gobs of money but our desires regularly run ahead of our income, we’ll suffer enormous financial stress—because we’ll never feel like we have enough.<<<
So to summarize your premises and conclusion:
Point 3 contradicts point 1. And research has shown that this is, in fact, the case. https://inequality.org/research/happiness-and-inequality-study/
As income inequality grows, the sense of trust and fairness decreases. This has all to do with relativism, not absolute levels. That’s why if you have a median income it’s psychologically easier to live in a middle class neighborhood than it is an upper class one, for instance. I’ve experienced this first hand.
The take-away for me is if you want to be financially free and happy, drop aspirational consumerism and live among others who live at the level you can afford.
As with many things…context here is very important. Jonathan also states that “… once we’ve achieved some minimum standard of living and have some sense of financial security, happiness becomes less about our absolute level of income and wealth—and more about our relative standing (to others).” It seems that Jonathan is merely trying to attempt a reconciliation of apparently contradictory research, rather than trying to force any firm (and possibly unwarranted) conclusion.
As for your assertion that ” if you want to be financially free and happy, drop aspirational consumerism and live among others who live at the level you can afford.”, I would tend to agree, and would also add that I would broaden the parameters of that statement to include living among others whose overall values more closely align with our own as well.
I didn’t say 1) — how we stand relative to others doesn’t affect our happiness. To quote myself (always a weird thing to do), “I’m not suggesting the research is wrong.” Rather, I just don’t think “relative to others” is as important as “relative to your own wants and needs.”
Thank you for the clarification. Your point is well taken.
Jonathan, your article timing is perfect since I retired (for the 1st time!) last week. I am navigating the emotional continuum, but the best part is knowing my time is finally my own.
Congrats on your retirement. Now, go do something!
I’m reading your books! 🙂
Spring in Illinois is short, but I’ve been cuddled up in our screened porch, enjoying the birdsong and reading. Next is creating our long-term travel list.
The day after I retired, we visited Cincy to enjoy seeing our middle son receive his MBA diploma. (And this is the kid who made me go crazy in my 30s, trying to coax him to enjoy reading. I started with dinosaurs, sports, comics, ANYTHING to instill that love.) I finally succeeded.
BTW, he is travelling your way next weekend for his future SIL’s U of PENN graduation. We do love Philly!
Bob Dylan said that “if ya wake up in the morning and go to bed at night and in between ya do what ya want to do, then you’re a success.”
it’s all about time.
I enjoyed your article and I feel happy and satisfied. Thanks to your website, I recently retired and planned my finances ahead of time. Time is more precious and vital than working a “job” and thinking I just have to have a little bit more money. I have always lived within my means and saved this is why I can live a new life and new journey now and be content. Once my home was paid off I soon at the age of 65 retired and have no regrets.
Enjoy your freedom!
You asked us to define enough.
I can’t. When I have enough, I’ll be able to answer the question. I suspect that unless I win the multi-million dollar lottery (which I do have a subscription ticket for each drawing), I will never be able to answer your question.
Hi Cammer Michael, perhaps you were being flippant in your response about not feeling like you have enough, I know I dislike seeing the red reaction numbers when I post something our community disagrees with or doesn’t understand my joking nature.
So in case you weren’t joking…knowing what you possess financially, mentally, in your heart for mankind, & in other areas (spiritually, if so inclined) this could pave a path toward knowing you have enough or could allow you to identify the steps needed to get there.
I know within 12 years selling our home & “downsizing” will occur, and we’ll take the steps needed to disperse our possessions. Now at 58 I’m saying “enough” because I want the freedom to use my days as I please & that means no more 9-5.
Best wishes on your journey!
I grew up in a financially insecure household, and I’ve thought a lot about what constitutes “security.” As young married adults, my husband and I spent a number of years without much money. At that point, “security” meant things like “being able to repair the car when it breaks down again” or, better, “being able to buy a more reliable car.” And “freedom” meant things as simple as “getting a pizza on a Friday night without having to calculate the budget to the last penny” (and maybe a cheap bottle of wine to go with it).
We’ve come quite a ways financially since those early years, and I agree that not only is the notion of “security” or “enough” very individual but also that it can change as you go through life.
It is a great feeling not to have to economize, which is relative. Many people’s expectations are lowered in retirement to hopefully enjoy the simple life of good health and good family/friends after a lifetime of struggle and acquisition. Taking inventory of friends and family who are no longer with us has a way of honing the focus. Years ago a hit song sung by Porter Waggoner sums it up, “A Satisfied Mind”, and it has remained in my memory bank to this day. A lot of people are struggling for that peace worth having.
Had to look up the lyrics. A beautiful song that’s absolutely timeless in its truth. Thanks for sharing!