Pathways to Financial Freedom

2. Determine what expenditures bring happiness. Take a look at your expenditures over the past couple of years. Reviewing your credit card bills and checking accounts — typically easy to do online — will suffice. You don’t need to track every penny. Look at each transaction or each category and then stroll down memory lane. Did thinking of the expenditure make you smile? Did you not even remember what some of the items were? Spending on experiences generally brings more happiness than buying stuff.

3. Shop and try to get a killer deal. While I’m frugal to the core, I feel such enjoyment when I get a bargain. The internet makes shopping so much easier. I always learn from AARP’s “99 Ways to Save” and the May AARP Bulletin article “The Brave New World of Shopping.”​

4. Automate. If you are still working, have a fixed amount of your paycheck taken monthly from your checking account automatically to go to a retirement account. If you’ve maxed that out, then have an amount taken from your checking account to go a taxable investment account.

5. Convert money to time. Though a nice new car is certainly tempting, do a simple calculation on how much longer you’d have to work if you bought it. Ask yourself: Is it really worth working another year?

Invest well

You’ve probably have heard stories of people who bought Bitcoin a dozen years ago or Apple shortly after it went public. Sure, these stories are exciting and sexy and some may actually be true, but, in reality, investing is very simple. Keep costs and emotions low, and diversification and discipline high. Then let the power of compounding take over.

With a total U.S. and total international stock index fund, you can own over 10,000 companies across the planet. While many companies such as (the original) General Motors, Kodak and individual banks will go into bankruptcy, global capitalism is far more likely to survive. Though my index fund owned those stocks, it also owned Zoom Media before I even knew what Zoom was. Nobel laureate William Sharpe shows the arithmetic of why these broad low-cost index funds must beat most money invested.

Complement your stock index funds with high-quality and low-cost bonds. Examples include bond index funds, Treasury bonds or I bonds. Even though 2022 was the worst year in the history of the bond market, bond index funds still lost less than stocks have lost in one day.

Then have the discipline to stick with your plan. When stocks plunge, rebalance by selling fixed income and buying stock index funds; when stocks surge, do the opposite. I can’t predict financial markets, but people tend to be predictably irrational buying high and selling low. Avoid these emotional mistakes.​

Putting it all together​

The two things for certain are that no path is the same nor very straight. Jobs come and go, divorce is common, supporting other family members may be necessary, bear markets will happen, and you will make mistakes. I certainly have. The key is getting back on track.

Yet financial wealth should not be measured in dollars, it should be measured in time. Look at how much time you have earned. I would argue someone with a $10 million net worth who needs $5 million a year to live on is pretty poor with only two years of financial freedom. On the other hand, the median net worth of those between the ages of 65 and 74 is $266,400, according to the Federal Reserve Board. So if one can be happy living on $10,000 a year plus Social Security, they are quite wealthy with 26.6 years of financial freedom.

Experiences bring happiness and don’t have to be expensive. Jonathan Clements recently told me, “Financial freedom means not having to regularly worry about money. If your wants and needs can be comfortably met without extravagant expenditures then you are far more likely to have a happy life.” I couldn’t agree more!