Financial freedom is available to those who learn about it and work for it.Robert T. Kiyosaki
Lately I feel like the terms ‘Financial Stability’ and ‘Financial Freedom’ are being thrown around a lot, but their definitions don’t always match the context that it is used in.
I’ll give you a little example to illustrate what I mean: in October 2019 I saw a guy posting his goals on social media and it included ‘achieve financial freedom by the end of 2019’. And why I thought this was argumentative, was not his way of setting goals, but the pure fact that he thought it was realistic and doable.
With this example I am not trying to belittle him. I actually admire his ambition. But I realized that he might not know the actual definition of ‘Financial freedom’. In fact, I think there are a lot of people wondering what the difference between stability and freedom is, and I don’t blame them. Both terms are being thrown around so much, that oftentimes they seem to describe a similar state of being. That is why I decided to write this post: to clarify that there actually are some factors that differentiate the two.
Key differences between financial stability and freedom
One of the main differences between stability and freedom is that financial stability is something to be achieved on a short-term basis. Short-term meaning within a maximum period of 1 year, whereas financial freedom is something to work towards and achieve in the long run (therefore longer than one year).
Financial stability generally means that you are able to pay the bills, put some money aside and have a financial buffer and maybe have paid off all of your debts or you are paying it off consistently, but you are still working at a job because it is your main source of income. Hence, you are dependent on that job.
In contrast to financial stability, financial freedom is a state of being where you do not have to just solely rely on your job, because over the years you acquired different assets that accumulate other streams of income significant enough to cover your monthly expenses. In addition, it also gives you the freedom to do as you please, like traveling and spending time with friends and family.
Another word for financial freedom, which you might be more familiar with, is retirement. Although retirement is mostly associated with people 65 years of age and older, they do have an income other than their job that covers their monthly expenses, namely their retirement plan or another kind of investing instrument. But nowadays you hear more people saying that they “want to retire before the age of 30/35/40” and in this particular context, it would be similar to financial freedom.
The two differences described above are the biggest ones and they show a clear contrast. Now it is up to you to decide what you want to aim for!
Lots of love,