Debt Freedom

by Jeffrey Kosola on February 8, 2011

Debt freedom is hard to define because it is so subjective. Each person has their own definition of it. Debt freedom generally means that a family is living without any debt. This may mean that the family has no consumer debt (credit debt, car debt, student loans, etc.). This may also mean that a family has no consumer debt and no mortgage debt. Both are way great ways to live and each has their benefits depending on your overall financial plan.

What is Debt Freedom?

Googling the definition of debt freedom doesn’t yield many concrete results.

Here is one from eHow – Definition of Financial Freedom

Debt-free financial freedom means having no debt and being able to live on very little income relative to people who do have debt and live the same lifestyle.  This enables the debt-free person to save rapidly for retirement, enjoy a few more luxuries or reduce their workload.  Being debt-free includes no credit card, loan, or mortgage debt.  Some people may consider investment debt (mortgage on a rental property, for example) to be acceptable debt, while others do not.

Here’s another take – How Do You Define Financial Freedom?

Meaning precedes money; purpose precedes planning.  It’s contradictory to believe that a given life objective can be reached by financial means.  The blind pursuit of financial freedom is often closer to slavery than it is to liberation. It’s making life a tool for money, whereas money should be made a tool for life.

I believe that financial freedom, if it exists, lies at the point at which the utility of money begins to diminish, the point at which the basic sources of physical well-being – food, shelter and clothing – have been met.  At this point, financial freedom may be had by (and defined as) the capacity to eliminate the desire for more money.  Or expressed in on word, contentment.

Really, though, the only wrong definition of financial freedom is the one that isn’t yours.  Don’t allow any financial planner, family member, friend, blogger, or anyone else to influence your definition of financial freedom!

I believe debt freedom to be a way of life that does not put any extra or undue stress on my financial plans.  Simply put, I do not want payments that will take away from the things I want to do in life.  I will probably always work; I’m a worker down to my core.  The type of work I perform may change, but the fact that I love to accomplish things with my hands and brain will not fade away.  The issue I will focus on the most is to maximize my income to provide a life that I want and like (on my terms).  Being consumer debt free will make this much easier.  I will continue to have a mortgage but that’s just fine with me.  I would rather focus on enjoying more of life than obsessing over paying off my house.

How to Achieve Debt Freedom

There are 3 simple steps required to reach the point of debt/financial freedom (using my definition).

  1. Learn to budget Understanding how money flows in and out of a household is the key to getting control of your finances.
  2. Spend less than you earn If you continue to spend more money that you bring in, you will never be able to budget correctly or save for the thing you’d like in life.
  3. Sacrifice If you are in debt, you need to understand that you something has to give.  You cannot continue to spend and live like you currently are if you desire to become debt free.

Your turn — What is your definition of debt/financial freedom?  Are you even concerned about it, or is it just something other people desire?