‘Freedom’ Money

I recently saw the film The Gambler, and one scene stood out at me, where John Goodman’s character describes his financial philosophy to the main character, played by Mark Wahlberg. Here’s that scene, but beware, the language here is very rough and very not safe for work.

Here’s the idea Goodman’s character presented, reworded into more, eh, polite terminology.

He encourages the main character to earn and carefully save a large sum of money – specifically, two and a half million dollars. You use that money to buy a house with a good roof – not a poorly-built McMansion, but a modest and sturdy home. You buy an economical car with a long lifespan, like a Honda or a Toyota of your particular flavor. Take the rest of the money and invest it in something that returns 3 to 5% per year. If you have $2 million in the bank and earn 5% a year in returns, you’ll have $100,000 a year in income. You’ll pay 15% of that in taxes – hooray for capital gains – and you have $85,000 a year to live on.

When you have that type of steady income, you’re financially independent. You have “freedom” money (Goodman’s character uses a rougher term for it, of course).

What can you do when you have “freedom” money? If someone wants you to do something you don’t want to do, you don’t have to do it. If you don’t like your boss, you can just walk away from your job and go do something else with your time, so you can be really selective about your work. It becomes your “Fortress of Solitude,” enabling you to be free of many of the day-to-day struggles.

(His only other piece of advice is to stay off alcohol and presumably other addictive substances, as they cloud your judgment and can drain your situation.)

The idea of “freedom” money, as expressed by Goodman in this film, lines up perfectly with my own views on financial independence. My financial goal is to have “freedom” money, in other words.

Five Simple Reasons Why ‘Freedom’ Money Is My Primary Financial Goal

The ability to walk away from a domineering boss and the ability to just avoid doing things you don’t want to do are nice, but that’s just the start of the story. Here are five reasons why I have set “freedom” money as my major financial goal.

I want to spend my time on things that won’t necessarily earn money. I’d like to write novels, for example, but there’s a good chance that will earn me nothing at all, and my current life affords little devoted time to make it happen.

I want security. I want to know that, aside from a calamity event, things are going to be just fine a week or a month or a year from now. I want to know that my children will have a secure childhood and that we will be there for them as they grow into adulthood.

I want personal flexibility. I look forward to a day where I can just decide to go camping for two weeks, pack up, lock the house, and leave. Professional entanglements keep that from happening – or at least from happening with maximum enjoyment.

I want to have the time to explore my areas of interest in more than a cursory fashion. There are many, many things I’d like to understand on a much deeper level. I do this in the cracks of my current life, but what I really need are large chunks of uninterrupted time. “Freedom” money gives me that.

I want stability in my golden years. I have witnessed loved ones suffer through some very lean times in their final years. Having “freedom” money means that not only is that not a worry in my life, it also means that those final years will be good ones for me and my wife.

10 Simple Steps I’m Taking to Get There

How are my wife and I going to reach that state of financial independence where we have that kind of “freedom” money? These ten steps are something of a summary of my entire financial philosophy, since my end goal has been financial independence for a while. So far, we’re completely debt free – we own our house without a mortgage – and we have a very healthy start on our saving and investing to reach that level of “freedom” money.

Here are ten specific steps Sarah and I are taking to reach that point.

We save a large portion of my income and live on the rest. Approximately 50% of our household income goes straight into the bank, either into retirement accounts or into straight investment accounts. That’s a huge amount, I know, but we built up to it over time thanks to the following steps.

We eliminated all debts at an interest rate higher than we could get in secure bonds. In other words, if a debt had a rate over about 3.5%, we paid it off as fast as we could. For us, that meant complete debt freedom. We have no debts at all, so our monthly bills are quite tiny. Imagine your bills without rent, without a mortgage, without credit cards, without a car loan… it makes a huge difference.

We use splurges as a treat, not as a routine. For example, Sarah loves to drink coffee each morning, but she brews her own at home rather than stopping at the coffee shop near our house or near her workplace. On the rare occasion when she does stop for coffee, it’s actually a treat rather than a $7 routine. Another example: when I buy myself a new item for one of my hobbies, I’ve usually felt anticipation for the purchase and I plan to invest more than enough time into that item to make it worthwhile.

We buy generics for most of your household goods. Generic breakfast cereals. Generic cleaning products. Generic ketchup. The list goes on and on. Most of the time, store brands are virtually identical to the name brands – they just cost less and don’t have a cute logo. I’m not paying for a logo.

We mostly eat at home and plan ahead for our meals. We eat out once every two or three weeks at most. Almost all of our meals are made in our kitchen, and rarely from prepackaged items. We use our grill and our slow cooker a lot to prepare quick meals. As for planning ahead, we make a meal plan each weekend based on what we find on sale in our grocery flyer, then build a shopping list based on what we need to execute that meal plan (which thus includes a ton of on-sale items from the store, since the meal plan was based on the grocery flyer).

We try to be as energy efficient as possible. We pay about $0.13 per kilowatt hour for energy and around $2.30 for a gallon of gas right now. The more we consume those things, the more they eat from our budget. Thus, we buy cars with an eye toward fuel efficiency (and reliability) and we do tons of little things to improve our energy efficiency at home, such as buying LED light bulbs during our replacement cycles, keeping our home air-sealed, keeping our windows open (and our furnace and air conditioning off) during non-extreme weather periods, and so on.

We dig into free and very cheap hobbies and entertainment. We visit the library all the time for books, audiobooks, DVDs, and Blu-rays. We go to all kinds of community events. We go geocaching almost every weekend (and some weekdays). We use our city’s public parks, doing things like playing frisbee and soccer on the fields, and recreational trails. We engage in hobbies that heavily use everything we buy for them, like board gaming. I personally enjoy collecting rocks. Everyone has different things that click with them, but we’re willing to try anything at all that doesn’t have a high sticker price. Sometimes, we find that we really like something we didn’t expect to enjoy.

I work from home. This means I don’t need a work wardrobe. It also means I don’t commute for work, so there’s no fuel used. I eat virtually all of my lunches from leftovers. There are no work trips or anything else like that. This cuts our expenses quite a lot as compared to our office worker days.

We have strong relationships in our community. These relationships constantly provide us with perks like free babysitting, advice on local discounts and deals, low-cost social events (such as dinner parties), and so on. They also give us eyes on our house when we’re traveling.

We value the long term over the short term. This is basically our mindset in almost every situation. When we’re considering a splurge, we recognize that it will have a negative financial impact for us down the road and whether or not that short little burst of pleasure that fades away quickly is worth it. Usually, it isn’t.

Final Thoughts

“Freedom” money is a beautiful concept, something that I’m sure many people dream about. The question really comes down to whether or not it’s something you really want for yourself. It’s not an easy road to get there, but you can make it there if you make the choice. Will you?

Trent Hamm

Founder of The Simple Dollar

Trent Hamm founded The Simple Dollar in 2006 after developing innovative financial strategies to get out of debt. Since then, he’s written three books (published by Simon & Schuster and Financial Times Press), contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.