Financial and Time Independence: What’s Your Score?

My business coach, Dan Sullivan, often speaks of freedoms. It’s his belief that entrepreneurs create and own businesses primarily for the freedom to conduct business in their own unique way. They often aren’t seeking freedom “from” something per se, but rather freedom “to” something. They may desire to escape from the doldrums of an office or an overbearing boss, but more often they want the freedom to pursue endeavors that invite excitement and challenge in their lives. They want to choose the people with whom they work, the purposes they wish to develop, and how they spend their resources and time.

The single freedom that most resonates with entrepreneurs is typically freedom of time — our most valuable resource. Money is renewable; we can always work to make more of it. But time is limited; there are only so many hours in a day, and so many days in a life. For most in the U.S., time is so valuable that it’s often tied directly to our compensation in the form of an hourly wage. Entrepreneurs typically desire escape from this time-for-money arrangement so they can multiply the value created by their work.

But what about freedom from work altogether? At what point can we make work a choice, turn down wrong opportunities, and focus on those that matter to us, be they business-focused or otherwise? I believe these are the questions that ultimately define financial freedom. This freedom isn’t an on/off switch. Rarely do we wake up in the morning financially independent (unless we’ve won the lottery). Instead, this freedom is built over time and with discipline.

I see financial freedom on a sliding scale. Most want financial freedom in the same way they want a vacation home: a far-off “nice to have,” without any real planning or assessment as to where they may be on that journey. Few attempt to lay out a scale of personal financial freedom, and even fewer take a hard look at what they must do to achieve the next step. Retirement is rarely the final step on this scale (as most retirees understand). Here’s my scale of financial freedom.

 Zero — You’re under the complete financial dependence of strangers who have no vested interest in you. In other words, you’re totally dependent upon others for your existence. Your labor, while valuable, isn’t particularly specialized and may be easily replaced.

One — You’re able to partially support yourself by adding value to others through a specialized skill or talent. Perhaps you contribute to a product or service that’s routinely purchased.

Two — You have enough resources for normal issues and the occasional emergency. Day-to-day expenses are covered, and though expensive problems may put a dent in your budget, they don’t wreck your entire outlook.

Three — You can save excess dollars, often contributing to your retirement, education, or health savings. You tend to avoid consumer and credit card debt but understand that some debt (like a mortgage) is necessary. You work for someone and must exchange your time for their resources.

Four — Your skills are in demand, and as a result you get to decide with whom you want to work. Multiple employers and paths are open to you. You experience some level of work freedom.

Five — You’re financially comfortable. You don’t regularly purchase flashy stuff (cars, homes, clothing, etc.), but your family values their annual vacation. You regularly max out your yearly retirement savings and keep a fully funded emergency savings. You can help friends and family when needed. Your value to an employer isn’t based on the amount of time you spend in the office, but rather your contributions.

Six — You can say no to banks, refusing to borrow money for almost any purchase. As a result, you’re completely out of debt: no mortgage, no car payments, no liabilities whatsoever. This is what we lightheartedly refer to as the “I only write on the back of checks” phase.

Seven — Your passive (non-work) income from dividends, interest, rents, etc. is more than enough to cover your living expenses. This passive income can sustain you for many years without needing to work.

Eight — Your assets, earning a reasonable rate of return, cover all your living expenses for longer than your life expectancy. In other words, you have what many call “financial freedom.” For all intents and purposes, your money will outlast you.

Nine — You’re completely independent of others and can say and do whatever you please without regard to the cost. Money or price is never an issue. You can have nearly anything you want, but not everything you want.

Ten — Your resources enable you to have meaningful philanthropy, giving to the causes that you value. In other words, your assets compound faster than you spend them.

Where do you think you fall on this scale? How do you feel about your steps to advance toward financial freedom? Is this motivating? Does it bring anxiety?

The goal here is not to make you feel behind or unprepared, but rather to encourage you to consider financial freedom as something worthwhile and concrete. Real wealth is not the money we have, but rather our ability to choose how we spend our little time on this planet. Your scale may look vastly different than mine, but I urge you to create one and assess your place on it. Almost everyone can adapt to accept their current amount of “stuff,” cut back, or spend less. When you control these freedoms, you are truly free.