You are not rich until you are free

You are not free until you are rich

Which of these statements are true?

Maybe both to some degree.

We live in a world that demands that we pay. We have to pay for almost everything we want, including the basic necessities of life - food, shelter, and clothing.

I get that there are those who live extremely frugal lifestyles and I can appreciate that approach. It is freedom within a certain set of boundaries. You are free but you have to limit your activities to those which you can afford. Imagine the difference between living in a van and parking overnight at Walmart half the time, vs. living in a mansion and flying around in your private jet. Both scenarios represent freedom, but one seems to have a lot more options than the other.

But I digress.

The point I am making here is specifically about financial freedom. To me, financial freedom is defined by:

1. Not having to work if you choose not to

2. Not having to compromise when choosing your activities.

3. Living the lifestyle you want, without having to worry about how to pay for it

Now, if we look closer at these three points, we can see that there are many ways to achieve these states of being, and many ways to interpret their fulfillment.

Not having to work

This doesn't mean you don't work, In fact, if you absolutely love your work, go to town. I envy those who have a career that defines them, and they can't imagine ever retiring because they derive so much joy from their chosen field. That isn't me. I work because I have to pay the bills, just like almost everyone else I know.

Not having to compromise when choosing activities

This is when you follow you heart's desire and don't worry about how much it costs. Want to jet off to Bora Bora on a whim? Do it. You want to have the steak or the chicken? You don't look at what it costs, you choose the steak.

Living the lifestyle you want

Finally, I get to the point of my tirade. You may have a certain lifestyle that you desire. It may be living in a tent under an overpass or it may be hobnobbing with the rich and famous in Monaco. You are free to choose whatever lifestyle you want and if you are able to live it care-free (financially speaking) then you are truly rich. So now I want to make a statement that, I feel, defines my whole philosophy about wealth.

You are only rich as your passive income allows.

If you earn a high salary and you are driving a flashy car and wear $10,000 suits, then you may think that you are rich. But..if you got fired, or became unable to work due to circumstances out of your control, could you still afford your lifestyle?

If the answer is "no" then you are not rich.

I believe that you are only as rich as your passive income allows. The money that keeps coming whether you work or not.

If you truly understand my point of view, you will appreciate my next statement.

Your lifestyle should be defined by the amount of your passive income, not your salary.

This is the true definition of financial freedom to me. You earn money while you sleep. You have your money working hard for YOU, 24 hours day, and you decide what to do with your time.

So in this paradigm, you would consider yourself poor until you can sustain your chosen lifestyle without working. If you earn a high salary, but have no investments, then you should live like a pauper until you have invested enough to not have to work.

If you wanted to be a fanatic, you would attempt to live ONLY on your passive income, and invest every penny of your "earned" income from your job. This would inspire you to get busy investing so that you can earn the lifestyle you dream about. It seems backwards or crazy, but It is an extreme example of how you can really gain a freedom that few ever get to experience.

If you were to invest your whole salary, and perhaps even your spouses salary too, you could build up a pretty sizeable portfolio of passive income producing investments quite quickly.

You wonder how this would be possible. The world doesn't stop just because you decided to hoard your cash. You still have to pay for stuff.

This is where long-term perspective comes in.

The old saying is :

"Live like no-one else now, so you can live like no-one else later"

If you made some huge sacrifices and pared down your lifestyle to a minimum, even though you could technically afford much more now, you could set yourself up to live a life you might never have dreamed possible.

Living in your sister's basement or in a shady part of town right now isn't the end of the world. It doesn't reflect on your status or your ambition if there is a long-term goal in the works. Because you know that this current "modest" lifestyle is not going to be forever, and that it is part of a much bigger plan, you may even find joy in the experience because it is a part of your grand design. It is you, doing something that most people are not willing to do in order to live a lifestyle that not many people are able to live. Being willing to do what most people are not willing to do is usually a recipe for success.

I realize that what I am suggesting sounds extreme and it is. My first book, "Be Your Own Bank" actually offers a blueprint for this plan, and many have enjoyed it. But you don't have to go crazy. You can scale this plan to whatever degree you feel comfortable with. I suggest pushing your comfort zone as far as you can, but the beauty of the plan is that it can be adjusted to any income level and any degree of risk tolerance.

To me, the most important part of this is truly understanding and embracing the primary concept:

You are only as rich as your passive income allows.

By drinking the Kool-Aid and believing this precept, you will make financial decisions towards this end. Prioritizing investing over lifestyle will ensure you are approaching financial freedom from the VIP entrance. This is what the "big boys" mean when they tell you to "Pay yourself first". Your long-term thinking will lead to long-term actions and that will lead, inevitably, to long-term freedom. This is not fantasy. You just have to be willing to get out of your comfort zone and take on a new way of thinking and acting.

If you want to change your life, you must change yourself.