Meaning, myths and mindset
Real financial freedom is about choice. How to spend your time, how to live, where to live; choice to be who you want to be.
But financial freedom is often misunderstood. Many people see it simply as having a large sum of money or reaching a magical financial milestone which suddenly confers a state of freedom.
“This time next year Rodney, we’ll be miwwionaires”
We work with clients who have millions but feel neither freedom nor contentment so it’s clearly more complex. We explore this complexity in this article.
Why can’t money alone buy financial freedom?
Because we just move the goalposts. The concept of the ‘hedonic treadmill’ (Brickman & Campbell, 1971) explains this perfectly. Essentially we are primed to want more, seek more, desire more. So individuals will quickly adapt to new levels of wealth or success, leading them to seek ever-higher financial goals, without achieving a meaningful elevation in happiness or contentment.
That’s not to say money isn’t important. Research by Bennedsen (2024) found that an income of up to £150,000 per year is positively correlated with emotional well-being. Money provides security, choices, and opportunities. But beyond this point, the effect begins to plateau. More money doesn’t continue to elevate your wellbeing.
👉 Key takeaway: Although money is important, financial freedom isn’t just about your bank balance— it’s about achieving a feeling of choice
How to define your version of financial freedom
What do you actually want as a human being? We have around 4200 weeks on this planet 🤞…. take out the 1404 weeks we spend asleep and the estimated 150 weeks on the toilet 🤣….. what do you want to do with the remainder?
If you have any chance of securing financial freedom (or contentment as a human being) you need to get a handle on your deepest aspirations, future wants and fundamental needs.
Not actually that easy.
One of the most effective ways to clarify your life goals is using the Kinder Questions—a powerful tool we use with clients at the start of the advice process to uncover what truly matters.
Get yourself a cup of tea (or something stronger if that’s your thing!) and answer them yourselves. Truthfully. Openly, without judgement and on your own.
They can be transformational (and as you can see they sometimes make people cry and swear!)
Three life changing questions
- Question 1: Imagine you have all the money you will ever need. How would you spend your life?
- Question 2: If you were told you had 5–10 years to live, how would you change your life?
- Question 3: If you had 24 hours left, what regrets would you have?
These questions help clarify your vision for your future. Rather than chasing an arbitrary savings goal, you can begin to work backwards from the life you want to lead and determine the financial plan needed to enable you to live it.
👉 Key takeaway: Answering these questions honestly can be transformational—getting a handle on future aspirations is the key to any effective financial plan
The pitfalls of chasing financial freedom
In a nutshell, there is a temptation to sacrifice ‘now’ for the vision of a perfect future.
The FIRE (Financial Independence, Retire Early) movement has made an important contribution to the conversation around financial freedom, advocating for aggressive saving and investing to enable early retirement.
This approach has merit. Empowering individuals to take control of their own lives and challenging outdated social constructs around ‘work’ and ‘retirement.’ However, that is not without danger
The dangers of an exclusive future focus
- Burnout from excessive work
- Unsustainable short term sacrifice
- Increased dissatisfaction with ‘where you are today’
- Unhealthy obsession about money and anxiety around spending
Real story: when money wasn’t enough
My mother in law died at 48. She’s worked incredibly hard to put herself in the financial position she was in. She would have traded that in a heartbeat to go on the safari that never quite happened. To have written the book she never got around to. To have spent more quality time in the company of her family and friends rather than her colleagues.
👉 Key takeaway: True financial freedom is about balance—ensuring you enjoy life now while working towards the future.
Guided’s approach to financial freedom: balancing today with tomorrow
1️⃣ Clarify your version of financial freedom (use tools like the Kinder Questions)
2️⃣ Fully map your current financial position through some kind of cash flow planning exercise
3️⃣ Optimise your financial position in a way which supports both your long term goals and your current wellbeing.
The 6 steps financial freedom framework
To fully optimise your financial position and so enable financial freedom, we take clients through six sequential steps. The process can take years to achieve but there are some quick wins almost anyone can take and the sooner you start the better.
Ensure financial security
1. Safety: building a strong foundation
- Establish a financial safety net, including emergency savings and income protection.
- Ensure you have the right insurance to cover life’s major risks (e.g., death, illness, loss of income).
- Put in place legal safeguards like Wills and Lasting Powers of Attorney (LPAs).
2. Stability: achieving financial balance
- Maintain an income greater than expenses to ensure financial stability.
- Manage and reduce debt to avoid financial strain.
- Optimise your banking setup with budgeting tools, savings buffers, and smart spending strategies.
- Set up savings spaces for investments and long term accumulation but also a spendable fund to facilitate your life now.
Build financial confidence
3. Knowledge: become well-informed
- Gain financial knowledge about inflation, interest rates, risk, and investment principles.
- Seek guidance from reputable sources and make informed, rational decisions.
- Use tax-efficient strategies such as pensions, ISAs, and diversified investments to optimise your wealth. Select passive investment strategies to reduce cost.
4. Positioning: accumulate & protect wealth
- Develop a sustainable investment strategy based on your risk profile.Increase pension contributions to secure long-term financial stability.Build diversified income sources to future-proof against financial shocks.
Establish financial Freedom
5. Freedom: structuring your wealth for life
- Ensure your financial resources will support your desired lifestyle.
- Create an asset base sufficient to cover essential and discretionary expenses for life.
- Plan for future needs, including care costs and inflation protection.
6. Fearlessness: enjoying life without financial anxiety
- Reach a state where financial security and confidence allow you to focus on what truly matters.
- Experience financial independence with the ability to make choices without stress or fear.
- Fully align your wealth with your personal values, passions, and life goals.
Where are you on this Journey right now?
Before moving forward, you need to know where you stand today. It’s vitally important you establish your current financial position and understand where that puts you on the journey towards financial freedom.
References:
Bennedsen, M. (2024). Income and emotional well-being: Evidence for well-being plateauing around $200,000 per year. Economics Letters, 238, Article 111730. https://doi.org/10.1016/j.econlet.2024.111730
Brickman, P., & Campbell, D. T. (1971). Hedonic relativism and planning the good society. In M. H. Appley (Ed.), Adaptation-level theory: A symposium (pp. 287–302). Academic Press.
