Quora Answer: What Do Investors Need to Achieve Financial Freedom?

The following is my answer to a Quora question: “What are the main things investors need in order to achieve financial freedom?”

“Financial freedom” is a meaningless term.  It is defined as having enough funds to pay your bills without needing to work for the rest of your life.  This supposes that your lifestyle stays the same, while your income gradually, and exponentially, increases.  The problem with this is that, in reality, the more people earn, the more they tend to consume.  They then acquire debt, assuming that their income will continue to increase, without considering that there is a natural plateau brought on by available financial resources, and market conditions.

To have financial freedom, you need to have a very large amount of funds, and a frugal lifestyle.  This means eschewing the need for that bigger house, that better car, that branded bag.  Most people cannot do that.  The newly affluent have this need to “reward” themselves.  This is why there are many billionaires who do not have financial freedom.  Their wealth opened to them new avenues of leverage, and they have to work to service that debt.

I have a dozen ultra-high net worth clients.  This means their net worth is well above US$30 million.  Except for two of them, the rest have certainly not achieved any semblance of financial freedom.  They are leveraged to an extent, both personally, and through their various vehicles, that they will likely be working for a very long time.  They buy very large insurance policies to cover their estate in the event of their demise.

The main thing you need for financial freedom is to know when to be content, that we do not need to show the world what we have, or keep up appearances.  You need to understand that there is freedom in living a normal life, and being anonymous.  If you can do that, avoid unnecessary debt, and then focus on your portfolio, even a million should set you free.  And if you cannot control your consumption, then even a hundred billion is insufficient.  A good night’s sleep, without financial worries, is priceless.  Most of the “wealthy” do not have that.