The Myths and Truths About Financial Freedom
Money is a very emotional subject surrounded by controversy, greed, fear, and a ton of myths. The problem is that some myths sound believable and even reasonable. Unfortunately, it’s so far from reality that you may never find your way back if you go down that rabbit hole.
In this article, we’ll be debunking five myths about money as it relates to financial freedom. Hopefully, this information will get you on the right path to achieving the wealth you’ve always wanted. In the end, we also share three timeless truths about money that can make your journey much quicker.
Five Myths About Financial Freedom
Here are five myths about money that are completely bogus.
Time is money.
On some level, everyone believes that their time is money. It’s part of why we value every second of the day. The more time you waste on frivolous activities, the less you have for the things that matter, like making money. But then, if you’re looking for financial independence, your time shouldn’t be worth your money.
This is because there are only 24 hours in a day. Converting that time to legal tender will only yield so much. Instead of gaining financial independence, you’ll be rewarded with fatigue, burn-out, and a lifetime of struggling. While your time is valuable, it certainly shouldn’t equal your money; it should be much more valuable.
There are two ways to earn more than your time can afford — starting your own business and investing. Both options give you the chance to compound your efforts and multiply your money. Additionally, you can hire employees who will lend you their time and talents. With enough savvy, you can become financially independent, with only a few hours allocated to work every day.
The second option is investing. With investing, you’re making your money work for you full-time while spending your time on other things. Investing is the key to compound interest, one of the most powerful wealth creation tools ever discovered. The bottom line is that time isn’t money, and it shouldn’t be.
You need to save 50% of your income to be financially free.
There are so many holes in the premise of this myth that it’s a surprise people still believe it. Firstly, the amount you save depends heavily on factors like your income, cost of living, and tax laws in your state. You can’t hope to save 50% if you’re just above the poverty line. Likewise, if you’re earning much more than you need, limiting yourself to 50% could be keeping you from wealth.
The solution is to create a savings plan based on your situation. If you can only afford to save 10% of your monthly income, that’s a good starting point. For the most part, financial freedom is a result of years and years of healthy money habits. There are other habits, like spending wisely, and of course, investing.
Most maverick investors will tell you that saving is never the path to freedom. After all, no employer is going to pay you a big enough salary to retire on. Instead, a combination of saving and investing is the way to go.
Another thing people do to boost their savings account is to live as frugally as possible. That’s ill-advised for several reasons. Financial freedom is about living your best life and trying to enjoy every second of it. Living frugally runs against that. The alternative isn’t to blow through your earnings, either. It’s to live within your means while enjoying life as best as you can.
Debt is bad for you.
There’s some truth to this statement. Debt incurred through credit card debts, insane monthly car payments, and tabs in bars is bad for you. The frivolity of these purchases isn’t even in question; it’s about whether or not you can afford the things you purchase.
Besides, credit card debts are some of the most imposing debts you can ever incur. They have high interest rates, but low minimum payments, keeping you trapped with a false sense of security. What’s worse, you can’t use credit cards to purchase assets that can take you to wealth, like real estate.
However, not all debt is bad. Some can even get you on a fast track to financial independence. Take borrowing for education. Debt like that can equip you with the knowledge you need to thrive in the world. However, you should only borrow if you’ll gain enough knowledge to pay off the debt. Otherwise, it’s no better than buying fur coats with an AmEx card.
Another good debt is the one you use for real estate investment. If you can convince a banker to loan you the capital for a real estate project, you should. Assets like real estate appreciate quickly, giving you enough cash to pay off the debt and keep some profits. It’s essential to know the difference between good and bad debt.
You should always own your home.
As popular as this myth is, it’s not true for everyone. Indeed, owning your home has its advantages. You live rent-free on an asset that’s continuously growing in value. Plus, there are all kinds of tax breaks and financial considerations you enjoy as a homeowner. If you’re unsure of which ones you qualify for, you can use Taxfyle’s tax calculator.
However, being a homeowner isn’t for everyone. As a financially savvy person, you should always seek the most profitable investment for your money. If you live in a country with a sluggish real estate industry or unfavorable tax laws, owning a home may be a horrible decision for you.
Investing in other opportunities and renting an apartment with the returns may suit you better. You have to consider that money matters are never straightforward — one size doesn’t fit all. There are subtle considerations, too, like the building’s maintenance costs and your new debt to income ratio.
Owning your own home brings pride and fulfillment. But then, if it doesn’t make financial sense, it’s no better than buying another frivolous asset. If it makes economic sense, buy/build your home. Otherwise, seek more lucrative investment opportunities.
Money, like all good things, comes to those who wait.
If there were ever a myth designed to keep people lazy and unmotivated, this would be it. Most successful people would tell you that the entire premise of this myth is flawed. The truth is inverted: Money waits for those who come.
Some good things require patience, like finding love or healing from deep wounds. However, some also require a proactive approach, like making money and finding lucrative investments. As much as we’d love to believe that patience solves all things, it’s simply not true. If it were, we’d all be billionaires.
The good news is that you don’t have to match everyone’s energy level to be rich. It’s much smarter to find something you’re good at, and then carve out a niche around it. Niches are hidden enough to remain uncompetitive, but specialized enough to see constant demand.
If you’ve ever achieved something noteworthy in life (educational accomplishment, career strides, or even family goals), you’ll realize that they all required effort and commitment. It’s not just enough to want it. The same goes for money.
Three Truths About Money
Now that we’ve busted some of the popular myths about money and financial freedom, let’s review some truths. These are tried and tested methods that have given several people their financial freedom. They can do the same for you.
Goals keep you focused.
Goals can keep you focused on the path in front of you. They remind you of where you’re trying to go and tell you how to get there. When setting goals, it’s essential to know when to go big and start small.