The Two Paths to Financial Freedom

2 Paths to Financial Freedom

Earlier in the year, I was speaking to a friend who works at JP Morgan. He's young (about 23), and passed through their graduate training programme to land a top job. The starting salary was an impressive £60,000. 

He wasn't happy though. A typical working day sees him wake at around 5.30am and, sometimes, return home at 9pm. Occasionally, he's also required to work at the weekend. 

Oppressive working hours weren't his only complaint. He also mentioned a lack of interest in his work, contending with office politics and having to deal with asshole bosses and managers. 

This got me thinking. He had, what society would consider (but I don't), a great job. Furthermore, he was already earning a lot of money and his salary would only continue to grow (perhaps it wouldn't be too much of a stretch of the imagination to see him earning upwards of £150,000 by the time he turned 30). However, despite his position and financial prospects, he felt stressed, overworked and unsatisfied. 

Is this the route to financial freedom? 

Work your ass off in, what society considers, one of the top jobs available, amass a ton of money, and, if you're lucky, retire early at the age of 50. 

The Real Cost of Following The System's Path

A closer look at the implications of earning a large salary, and the cost of living, reveal that The System's dream of early retirement could be hollow. 

To start with, a salaried job will require you to pay a lot of income tax. Depending on which country you live in, you might only see £65,000 out of the £100,000 you earn. 

Then there's the mortgage or rent. Of course, this figure will depend on your earning potential. However, it's not uncommon to be paying 25% of your income (after tax) on putting a roof over your head.

Then, when you factor in the rising cost of food, transport, holidays, the debt you might be paying off from university and socialising, even the highest grossing salaries leave little to be saved or invested. 

This isn't all, though, as these figures say nothing about the phenomena of keeping up with the Jones's. The more money you earn, the greater your expenses. If your social circle all possess a four or five-bedroom house, several large cars and holiday at exclusive resorts, it can appear a necessity that you do the same. 

Being unable to resist peer pressure will take a huge chunk out of your freedom fund - the money saved to ensure you're never obligated to work a job you don't enjoy, either by making smart investments or launching a business you're passionate about.  

So, even if you earn £100,000 a year, when you factor in all these costs, perhaps you're only left with £10,000.

Not bad, you might be thinking, but how long is that going to last?

Even after 10 years, you've only got £100,000. Will that be enough to support you for the rest of your life?

When you analyse The System's Path a little closer, it begins to seem like a trap. The massive cost of living, whether by design or not, keeps you within it and dependent upon it. If someone earning £100,000 a year, within the top 2% to 3% of salaried incomes in the UK (according to IFS calculations using the Family Resources Survey 2011 - 2012), finds it difficult to escape, then what hope is there for the average person?

Not much, and this is my point. If you're looking to win your financial freedom through The System, then you're looking in the wrong place. Even if you follow all the rules (get great grades at school, your shiny degree and the kind of job that would make your parents proud), it's still likely you'll be waiting until you're 50 to be free.  

So, what are your options?

Work/Create a Job you Love

Before we go any further, you must enlarge your definition of financial freedom. It's not exclusively about earning enough money so you never have to work again. It also means living a life where money doesn't determine your decisions. For example, you work a job you love doing, irrespective of the amount it pays.

Think back to the previous two examples of my friend at JP Morgan, and the theoretical £100, 000 a year salaried worker. Neither are financially free. Despite both earning a lot of money, they are still trapped by their need to make it. 

My friend doesn't work at JP Morgan because he loves being there. He works there because he gets paid a lot and has the prospect of earning even more. He trades his time for money. Therefore, he isn't financially free (and won't be for many years to come, despite increases in salary) because money dictates one of his major life decisions and compels him to spend time doing something he doesn't enjoy.    

Ironically, your salary could be a third of my friends, yet because you love your work, you experience greater financial freedom. 

This is a liberating message. If you can ignore societies' conditioning, telling you that to enjoy your life, or be of value, you need a certain standard of living, then you have the opportunity to be financially free. Find a job or, more likely, create a role that you love doing and spend every day of your life stimulated and engaged.

Surely that's worth having one less zero in your bank account at the end of the year?

Go for your 'Crazy' Dream 

You may feel that I'm being presumptuous in my financial assessment of doing the work you love. Who says that you won't end up making a lot of money and outstripping the employed high fliers? In fact, doing the work you love seems to be the only route to become mega rich.

Society is divided into three sections. First, you have the poor. They struggle to survive (and sometimes don't) or live off the welfare state.

Then you have the largest section of society that, whether willingly or not, follow The System's Path. The degree of wealth within this category varies greatly. At one end of the spectrum, you have those with no savings or investments and, possibly, living in debt. However, despite having low paid jobs, they still manage to function in society, follow the rules and accept the social norms.

At the other end of the spectrum, you have people like the two I highlighted in my earlier example. Society considers them rich, yet they are not financially free. They still live a life where, the majority time, they're doing something they don't want to do. They just get more handsomely rewarded than the rest.

The final section is the mega rich. Irrespective of age, they have the kind of wealth that means if they didn't want to work another day in their life, they wouldn't have to. With the exception of breaking the law (and even then, they can sometimes buy their freedom), they can do what they want to do, when they want to do it. They're the multi-millionaires and billionaires and they share one strange thing in common.

Unless their wealth is inherited, they reached their exalted position by rejecting The System's Path. They refused to conform and, instead, followed their 'crazy' dream or idea. Think Richard Branson dropping out of school and starting his record label. Think Jeff Bezos resigning from a well-paid, secure corporate job and risking it all to set up an online shop. Think of the countless sports stars who, as children, get told their dream is a one in a million shot, yet still follow it and eventually make their way into the professional ranks. All of them defy the conventional logic of the society they live in, yet all of them end up financially free. 

So, what's the message?

If you have a 'crazy' dream, or idea, that has the potential to make millions, then go for it. Despite The System's protestations, you haven't got much to lose. 

What's the alternative?

Working your ass off for thirty or, more likely, forty or fifty years doing a job you don't enjoy just so you can stay afloat or, at best, be comfortably well-off. Why not give yourself a shot at true financial freedom by pursuing the only path that promises virtually unlimited wealth?   

Either way, as long as you make a minimal amount of money to cover your expenses, you win. 

With enough time, you might succeed and create your fortune. And even if you don't, or it takes you longer than you expect, you still get to spend your days feeling stimulated and alive.

Conclusion

I hope this blog post has got you thinking. Following The System's Path is not going to lead to your financial freedom.

If you want a safer life, where you can, largely, remain in your comfort zone, then choose this option. However, don't make this decision thinking you can use the corporate ladder to slowly increase your salary to the point where you can retire early and walk off into the sunset. 

One way or another, it will end up using you!

(Image taken from Keith Cooper photostream at flickr.com)

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