How to Find Purpose at the Core of Financial Independence

Subconsciously, we all hunger for purpose. Turns out, working forever isn’t our purpose. While it might be a calling and it can bring fulfillment, very free people write about their labor on their tombstones. Find your Ikigai to enter your “state of flow.“

How to get Closer to Our Purpose

Striving for financial independence can get us closer to our purpose. Financial independence is often viewed as a long and dreary journey that takes multiple decades to pull off. From the advent of television, these sad day-to-day lessons boiled down to 1. go to school for 20-30 years, 2. work for 40 years, 3. retire for 10-15 years, and then 4. die.

As we tacked on modern stressors and social media, people stopped asking questions and settled into a routine. The pandemic changed that. It jolted the world off track. And we have never been the same since.

It’s become increasingly apparent that the average American can’t cope. And yet, Americans aren’t alone.

The World Health Organization found that the COVID-19 pandemic triggers a 25% increase in the prevalence of anxiety and depression worldwide.

These concerns about potential increases in mental health conditions had already prompted 90% of countries surveyed to include mental health and psychosocial support in their COVID-19 response plans.

The Core of Financial Purposeless

One of the missing links in this conversation stems from our lack of financial awareness.

We work, we spend and then we need more money. It’s a tireless rate race. We literally can’t keep up with the joneses anymore. Gone were the days, when you spend purchased a new cell every 7-9 years. You are now prompted annually to spend at least $1,000+ for your upgrade.

On a subconscious level, you know there is something wrong and the stress is slowly killing you.

Financial freedom can offer you the one thing you lack, control. If you hate your job, you can now walk away. Want to spend more time with your loved ones, you now have full permission to say “Yes”. This is the power of financial freedom. It goes beyond luxury travel, exclusive fashion, and expensive dinners. True Freedom is the ultimate gateway from whatever this is.

There are real psychological benefits to financial freedom. Both theory and empirical evidence found that financial conditions are influential on mental health and contribute to physical health outcomes.

“Financial safety and financial capability were positively associated, while financial distress was negatively associated, with self-reported measures of physical and mental health. Additionally, financial conditions were associated with a reduced risk of depression based on health insurance claims data,” cited in The role of financial conditions for physical and mental health.

This makes it imperative that you lean in.

You Don’t Need a Lot of Money. You Need a Plan.

Most people believe you need an exorbitant amount of money to become financially independent.

At an initial glance, to cover the 2021 median expenses of $66,928 per year, you’d roughly need $1.9 million invested in your portfolio with a dividend yield of 3.5%.

But that’s a very big number. The median household in the US only brought in $87,432 and typically saves less than 10 percent.

Worry not. You don’t have to do all this heavy lifting on your own. The formula for building wealth is simple.

Wealth is equal to your 1. Contributions, 2. Compounding Rate of Return, as well as 3. Time. The more we put in upfront, the easier the lift. The longer we have to let your nest egg cook, the better.

To work up to the $1.9 million portfolio, you need a great financial plan. This plan should include Budgeting, Investing, Tax Planning, and Cash Flow Management.

Financial Freedom Isn’t Work Avoidance, It’s about achieving a meaningful drive and purpose for your life

Everyone should generate income to cover their expenses.

To improve this, you would have to first account for your income sources and compare them to your monthly expenses. Even if your cash flow breaks even, keep working especially in your 30s and 40s to boost your savings. In your 40s-50s, it’s debt repayment crunch time. Within 5-10 years of retirement, it’s all about goals and aspiration-setting.

Never working another day in your life only sounds like a dream if you’re not currently living the dream life. However, having a plan ensures that you aren’t skipping a bit on what matters most. It’s very possible to find a better life balance.

If you work at a high-paying job you hate, it will never bring you closer to your purpose

In our 20s-30s, we were often surrounded by hard chargers. Those who seemingly wake up at 4 AM and after sleeping at 1 AM. The Instagram super influencer that can do it all. Most of them are just filters.

If you work at a high-paying job you hate, it’s likely doing you more harm than good. More money often means more access to debt financing to yet again keep up with the Joneses. About 50.8% of those earning over $100,000 reported living paycheck to paycheck, according to the PYMNTS’ research.

PYMNTS’ research finds that 60% of all consumers who noticed price increases report having to make changes to how they manage and spend money. Half of those respondents indicated that they were under significant financial stress while making extreme lifestyle changes.

The core journey of Financial Freedom inverts your relationship with time and money. When most people talk about financial freedom, they focus on building up a portfolio. The reason they are building those portfolios is simply to Buy Back more of their own time.

Start Where You Are to Build the Million Dollar Portfolio

Speaking of that big portfolio, you don’t need to net six figures to achieve financial freedom. There are incredible stories of people making less than $70,000 to achieve this dream. While more income significantly helps, it’s not required.

The keystone here is compounding.

With the power of compounding, the current cash flow you generate from your portfolio can even double even if you don’t invest another penny. You just have to find the right investment vehicles for the job.

Furthermore, by combining your income, decreasing unnecessary expenses, and increasing your portfolio’s cash flow, financial freedom becomes easier to achieve.

For example, to reach $6,000 per month, you can generate $5,000 per month after tax (based on your salary) and $1,000 per month through cash flow. You definitely don’t need a million-dollar portfolio to hit $1,000 per month in cash flow.

For $1,000 per month (from an average 3.5% dividend yield), you would need about $342,857 invested. So how do you get to a nearly $350,000 portfolio?

Compounding Your Way to Purpose

Compounding makes a more notable difference when you combine cash flow with income.

Assuming an annualized at the historical average 8% growth rate on your dividend cash flow (3.5% yield + 2.75% dividend growth rate), your $1,000 per month turns into $1,402.55 per month within 5 years. That means you can work a little less to continue making $6,000 each month.

The compounding will help you on the road to a $1.9 million portfolio. There are other ways to help your odds. You can see services or products. Additionally, you can take a crack at real estate for cash flow. Your options are limited only to your drive and your ability to learn hard things quickly.

Know Your Expenses

So far, we’ve focused on how we generate income but I glossed over your expense. Changing the way you spend money is the biggest hindrance to your financial growth.

Knowing your expenses is just as important. If you make $7,500 each month but spend $9,000 each month, you are likely in credit card debt.

A higher cost of living areas can become a massive detriment to a higher salary.

Higher expenses add up quickly and they carry their own negative compounding effect. For example, an expensive new car carries higher than average insurance, maintenance, and repairs.

A bigger home with a lawn naturally lends itself to higher energy costs and home care. Learning to live within your mean is just as important as increasing your income. In some instances, lowering your expenses is more important since income isn’t guaranteed.

You can get fired, get a pay cut, or be laid off. Alternatively, when things are good, it’s better to exert more control over your expenses and rebalance your savings in order to support your income. The goal here is to think ahead.

Become Your First Investment

As it stands in 2022, the average family spends $5,102 per month. To cover these expenses, you really have to invest in yourself. For starters, aim for higher-end skills that most can’t perform. This will give you an edge. Secondly, make the most of all the benefits around you today.

As prices increase, a dual-income household will become unavoidable. Even if you are a sole provider with two jobs. Considering roommates or moving back in with family, can save at least 30% off your housing cost. This is a significant debt repayment or cashflow sum.

Even though financial freedom takes considerable work to achieve, the path is surprisingly simple:

1. Make enough money to cover expenses.
   • Increase income and Reduce your expenses
2. Find better hobbies. Especially those that add to your purpose while refining your core values.
   • Work on those certifications and most importantly know how to communicate,
   • Even if you don’t know how to sell or brand yourself.
3. Review and monitor your finances. As a bonus, lower your Debt to Income ratio.
   • While being intentional about investing to build cashflow-producing assets.

I didn’t say “Build up a $1 million portfolio” or “Starve Yourself.”

Do both. Start doing the things you want to do when you retire. There is no need to hardcore sacrifice or starve your dreams. Prioritize what’s important, the rest are distractions.

Financial independence is easier than advertised.

Start with a plan and take action early. The core of your financial journey is to buy back more of your time so that you can ultimately become the value that you are seeking. You know the old “be the change you want to see.”

With that said, see you on the other side of happy.

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