15 Examples of Financial Freedom
John Spacey, June 25, 2021
Financial freedom is the degree to which an individual is free from external financial constraints. The following are illustrative examples.
Upper ClassUpper class is a term for families that have sustained significant wealth over three or more generations. Members of the upper class could live off their capital without working. Many choose to work nonetheless. The upper class are known for financial discipline and discretion such that outlandish displays of wealth are avoided. The world is designed to separate the rich from their money such that sustaining wealth for many decades or centuries requires this type of ethic.
Rent SeekingRent seeking is the practice of seeking a greater share of wealth without adding any value. This is common amongst the upper class of nations that suffer from cronyism and corruption. For example, a family that is awarded lucrative government contracts based on long standing political connections.
Nouveau RicheThe nouveau riche are families that have build wealth themselves that is large enough to sustain for many generations. Few will ever achieve this as they may seek attention, signal status, overspend and invest recklessly.
BourgeoisieThe bourgeoisie are families that own capital such that they don't live on their labour alone. This ranges from the upper class down to the upper middle class. The bourgeoisie could choose to retire early but often choose a lengthy career nonetheless.
Middle ClassThe middle class are families that earn disposable income such that they have spending choices. This is a type of financial freedom. The middle class may choose to inflate their lifestyle up to the maximum they can afford. Alternatively, they can invest in capital, self-improvement and leisure. If they choose, the middle class can typically save and invest conservatively for many decades to retire earlier than average.
Working ClassThe term working class is used for families that earn a living wage with their labor but don't have any real disposable income. The working class are completely dependent on their labor as they have little capital. In a meritocracy such as a capitalist system, they can potentially transition to the middle class and above with talent, knowledge acquisition, hard work and entrepreneurship. However, poverty is a vicious circle that makes this difficult to achieve, particularly in nations that don't have much social spending such that basics like education and healthcare are expensive.
Lifestyle InflationLifestyle inflation is a tendency for people to upgrade their lifestyle as their income rises. This can quickly eliminate any chance for financial freedom. For example, a tendency for the middle class or bourgeoisie to purchase and renovate homes that they can barely afford such that they effectively have no other disposable income.
Financial Independence, Retire EarlyFinancial Independence Retire Early, or FIRE, is a broad culture of people who want to build enough capital to retire early. This is led by a variety of investment and lifestyle gurus who advocate ways to eliminate expenses, reduce debt, save and achieve return on capital.
Passive IncomeFinancial independence gurus often speak of passive income. This is more typically known as capital and return on capital. For example, if you own a bunch of apartment buildings, they will provide you with income and expenses, if you outsource the work to administer and maintain this capital then any net income that occurs is "passive."
Speculative InvestingPeople with a strong desire for financial independence or retirement may be drawn to ill considered speculative investing that is only likely to destroy capital in the long term. Speculation is essentially a type of rent seeking.
EntrepreneurshipFounding a business and working hard for a number of years in order to enjoy financial freedom later. Likewise, working for a promising startup as an early employee can sometimes result in significant wealth. This would seem more realistic than speculative investing but is often not preferred because it involves much work, responsibility, accountability and commitment for a period of time.
Simple LivingSimple living is a culture that advocates for less consumption. This is related to the financial independence movement when this is motivated by a desire to retire early. The simple living movement is related to other culture such as minimalism, diy and environmentalism. By reducing consumption, simple living increases savings and reduces the capital required for financial independence.
Short WorkweekAnother approach to financial freedom is to continue to produce value with labor but to somehow become so productive that your work hours are greatly reduced. There are a number of lifestyle gurus who take this approach. There are also many individuals who achieve this type of lifestyle based on a talent, reputation or relational capital. For example, a well known business person who serves on several board of directors such that they have high income and low work hours.
Do What You LoveThe last approach to financial freedom is to find a job or small business that you enjoy so much that it doesn't feel like labor. For example, a diy enthusiast who makes a living with repair workshops that they truly enjoy.
Second CareerOver-obsession with retirement can waste your life away -- plans for the future can be an excuse not to live in the moment and capture life now. Early retirement may come as a disappointment to those who achieve it as productive life can be rewarding. For this reason, it is common for retired people of any age to seek a second career.
NotesDebt is essentially the opposite of financial freedom as it ties up your future income. However, debt such as a mortgage can make sense as it allows you to pay for a large asset as you use it.
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