A New Definition of Financial Freedom

In this month’s newsletter, I would like to make an attempt to define ‘Financial Freedom’.

I have seen this definition somewhere: “Have as much money as I want, do whatever I want with whomever I like, as much as I want to and whenever I feel like it.”

This is a typical “total freedom without restrictions” type goal, it sounds good on paper, but good luck to those trying to get there?.

Can we really have total freedom without restrictions?

I personally don’t believe such state can even exist. In other words, there is no such thing as “total freedom without restrictions”. Let’s face it:

  • You can’t be freed from a trap, if there isn’t a trap in the first place;
  • You can’t talk about freedom without talking about the trap that you want your freedom from at the same time;
  • You won’t experience the freedom if you are not aware of the trap.

It looks like we have to deal with the ‘trap’ first before we can even talk about freedom. Trap, in this sense really means some sort of restriction or barrier.

Here are some popular definitions of Financial Freedom.

1st Definition:

A popular definition of Financial Freedom is described as a state or a condition when someone’s passive income from their investment is more than their work income. By this definition, because this person doesn’t need to work for an income, he is financially free.

It is obvious that this definition has its focus on keeping the income up; Financial Freedom is defined mainly by how high a passive income one may have.

The problem with this first definition is that not everyone feels their work income is sufficient to cover their expenses. Even if their work income is replaced by a passive income, they may still feel financially trapped.

2nd Definition:

So another popular definition of Financial Freedom is described as a state or a condition when someone’s passive income from their investment is more than their desirable lifestyle expenses.

It is obvious that second definition has its focus on keeping the expenses down. Financial Freedom is defined by how well you keep your expenses below that of your passive income.

The problem with the second definition is that how much expense is considered acceptable?  You may have $10k passive net income per month which can be higher than your current work income, but if your monthly expenses are $12k per month, you will still feel trapped financially.

3rd Definition:

The third definition of Financial Freedom can be derived from the first two: a state or a condition when someone’s passive income is greater than their work income and more than adequately covers their desirable lifestyle expenses at the same time.

This definition seems to cover it all, if one can manage to keep one’s passive income higher than their lifestyle expenses, he or she should be considered Financially Free.

I like this definition, its main advantage is that it is measurable and objective. For example, if I am currently earning $100k a year from work and spending $80k to maintain a reasonable lifestyle, when my passive net income from investment is over $100k and my spending is not more than $80k, then my work income becomes optional. Obviously if it takes you 10 years to achieve that, you would need to increase the numbers accordingly.

The issue with this definition of Financial Freedom is that it is defined by external conditions such as income and expenses, and external conditions to a person are rarely sustainable.

Let’s see some examples even after you have achieved this definition of the Financial Freedom:

  • You could suddenly run into an urgent situation that requires a large sum of money, which requires you to sell off some assets. Your passive income may then be reduced to less than that of your lifestyle expenses. You have just lost your Financial Freedom by this definition.
  • Your circumstances change and require you to increase your lifestyle expenses due to health or personal issues. You may find your passive income insufficient to sustain your new lifestyle. Again you have just lost your Financial Freedom by this definition.

You can see from the above examples, regardless of how free you feel financially, you can lose your sense of freedom simply by a change of circumstances or goals in your life.

Financial Freedom, defined by external conditions, such as income and expenses is rarely sustainable. You often hear people ask ‘how much is enough?’ People can still feel poor with millions in the bank account.

Since freedom without restrictions is not desirable, maybe we should then define freedom by its restrictions. Since freedom defined by one’s external conditions is not sustainable either, maybe we should define freedom by one’s internal ability.

If we allow ourselves to have 2 ways to define financial freedom, one, according to the 3rd definition above, which is mainly based on external objective measurement and the other way can be through internal subjective measurement, such as this:

Financial Freedom is defined as the ability to be comfortable with one’s financial restrictions.

This doesn’t sound very inspiring at first glance, but it is no easy task by any means.

First of all, be comfortable with one’s financial restrictions doesn’t mean simply putting up with it. Be comfortable here means you can create, own and confront the financial restrictions and not be the effect of it.  Let’s face it, regardless of how much money you have, you still have financial restrictions, so if you can’t be comfortable with it, you will always feel trapped by it.

Secondly, Financial Freedom by this definition is an ability, not a temporary external condition.  Ability is a skill or talent a person possesses or has developed, and once you have it, it is more sustainable, just like your ability to walk.

How can someone develop the ability to be comfortable with their financial restrictions? This seems to hold the key to one’s true sense of financial freedom.

This is a similar question to how anyone develops any kinds of abilities, such as walking.

How did we develop the ability to walk?

Let’s observe a baby learning how to walk for a moment:

  • A baby is usually reaching out to the parents (a desirable goal ahead that has nothing to do with walking);
  • The parents usually stay close enough to the baby to make the goal achievable;
  • The baby starts wobbling towards the parents (the goal), not so much attention on his/her ability to walk, but all the attention is to get to the goal;
  • If the baby falls down, the parents cheer; if the baby reaches the parents (goal), the parents cheer just the same. The baby probably doesn’t know the difference between falling down or getting up as they get cheered on regardless.
  • The baby keeps repeating the same thing over and over again, falling over less and less until he/she doesn’t fall over at all.

When the baby doesn’t need any motivation, support or appreciation to do his walking, we can say that he/she has now developed the ability to walk.

How can we develop the ability to be comfortable with our financial restrictions?

We can almost map the baby walking example step by step to achieve this:

We can set a goal which may or may not be measured directly by money. But to achieve that goal, we have to learn to manage our money well and handle our financial restrictions responsibly. The financial responsibility required to achieve this goal needs to be a bit outside of our comfort zone, just like ‘walking’ is outside of the baby’s ability at the beginning. This goal also needs to be something desirable for us.

  • We can break the goal down to achievable steps so that it is more manageable and practical (e.g. an action plan). Just like the parents that keep moving backward to lead the baby forward.
  • Put our focus on the goal rather than on our initial discomfort with the financial restrictions. You can imagine what would happen to the baby if he/she puts their main attention on the wobbling rather than the parent.
  • Keep reminding ourselves that we’re on our way to our goal regardless of the failures or successes along the way. The key is to appreciate ourselves on our endeavor, even when no one else does.
  • Keep dealing with the financial restrictions repeatedly and responsibly until we become more and more comfortable with them, so much so that we can create and own the financial restrictions comfortably.

By the same token as walking, when we don’t need motivation, support and appreciation to handle our financial restrictions comfortably, we could then say that we have developed the ability to be comfortable with our financial restrictions. This gives us a true sense of financial freedom, with longevity!




I think there are two ways to define financial freedom:

An objective but more temporary definition:

Financial Freedom is a state or a condition when someone’s passive income is greater than their work income and more than adequately covers their desirable lifestyle expenses at the same time.

A subjective but more permanent definition:

Financial Freedom is the ability to be comfortable with one’s financial restrictions.


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