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Financial Security Vs. Financial Freedom: What’s The Difference?

Posted by Jim Kantowski, CFP®, CPA on September 14, 2021

Financial Security Vs. Financial Freedom: What’s The Difference?

Financial goals are highly personal. You may only wish to have your basic needs met and pay off your debts—or you might envision yourself buying a second property in a tropical destination where you’ll someday retire and spend your days poolside. Whatever you desire— financial security vs. financial freedom—you need a road map to help you reach your objectives.

In this blog post, we’ll explore financial security vs. financial freedom. We’ll answer the questions “What does financial security mean?” and “What is financial freedom?” We’ll also discuss how you can achieve financial freedom.

Are you ready to build your financial future? Schedule a call with a Bay Point Wealth advisor to find out how our comprehensive financial plans can help.

Financial Security Vs. Financial Freedom

What does financial security mean?

Having financial security is important for every American to feel a sense of safety and well-being. To be financially secure means you can meet all of your basic needs like food, shelter, and living expenses. It also means you’re prepared for milestones like sending your kids to college or entering retirement and that you’re financially equipped to handle a crisis or illness that comes your way.

There are several ways to achieve financial security. You might have a stable job with a good salary or fixed income stream like Social Security or a pension. You might also have an additional layer of protection, such as life, disability, or long-term care insurance to protect against the unknown. Whatever your personal situation, to be financially secure means you’ll still be able to pay your bills, even in the event of a major disruption to your life.

Building up a nest egg is a great way to strengthen your financial security. A cash reserve can be especially helpful if you lose your job unexpectedly or incur a large expense like a new car or home renovation. We recently saw how important it was to have a cash reserve on hand when the global pandemic hit. So, we recommend saving at least three to six months of your annual living expenses (or 12 months if you want to be more conservative) in a bank or savings account that is safe and easily accessible in the event of an emergency.

What is financial freedom?

Here’s a simple financial freedom meaning: It goes beyond having your basic needs met. Financial freedom doesn’t mean you can spend whatever you want whenever you want; it means you have the ability to make decisions about your life that won’t jeopardize your financial security. You are in control of your finances, and your finances do not control you.

If you’re working in a job you dislike, financial freedom means you can make the conscious decision to pursue your dream job, start a business, or take time off without worrying about making next month’s mortgage payment. One recent prospect described financial freedom as having the ability to switch careers to something more meaningful, support his mom during her retirement years, help a nephew go to college, and improve his home if he wished. Having financial freedom means this individual can make decisions based on his desires rather than his financial commitments.

It’s important to recognize that financial freedom doesn’t necessarily equate to being rich or having an unlimited amount of money. You may not have a lot of wealth, but you also may not have a lot of expenses. For example, you could have no debt but also not own a car or property and still be financially free. On the other hand, you could have a high salary that requires you to spend your time working, or a high mortgage payment that doesn’t provide you the freedom or ability to travel or do what you love in your spare time.

We like to think of financial freedom as near the top of Maslow’s Hierarchy of Needs. When your basic and psychological needs are met, you can pursue creative activities that enable you to fulfill your potential.

Your Road Map To Financial Freedom

You now know the difference between financial security vs. financial freedom. Achieving financial freedom means you’re in control of your finances. It starts with identifying what freedom means to you and setting goals upon which you can build a financial plan. Ask yourself whether financial freedom looks like leaving your job, traveling the globe, providing for your children, or caring for your grandchildren.

Anyone can achieve financial freedom. If you’ve done a great job saving your money in the right accounts, living within your means, designing an investment portfolio that fits your personal situation, and keeping your tax bill as low as possible, you can build enough wealth over time (or reduce your debt and expenses enough) to live the life you want.

Bay Point Wealth Can Help You Reach Your Goals

At Bay Point Wealth, we understand that every financial situation is unique. We’ll work with you to reach your unique financial objectives. We’ll craft a plan that enables you to accumulate the wealth and assets you need to first cover your basic needs, then work toward financial freedom. Schedule a call with us today to find out more about how we can help.

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Topics: Financial Planning