Financial Freedom: What Does it Mean to You?

Last updated on July 22nd, 2017

From a young age, most individuals are instructed to get an education and then a job. After landing a solid job, the recommendation is to save a small percentage of each paycheck for 40+ years until retirement.

The underlying assumption is that we should all follow the same linear path from elementary school until death, spending the majority of each day at work, trying to climb the ladder, to get a raise, to buy a bigger house, to fill it with more stuff that wasn’t necessary to begin with. Only after retiring is there room to explore, relax, or spend time with family.

You might call it the time-money paradox. Most Americans trade the majority of their available time for a paycheck, and then spend the majority of each paycheck on depreciating material possessions. As the spending snowballs, many individuals desire a larger paycheck, which requires longer hours and more responsibilities at work, which means even less time to enjoy the additional income. It’s a vicious cycle that often continues in perpetuity.

I can’t speak for you or anyone else, but the standard American lifestyle doesn’t work for me. Instead of material possessions, I prefer to have freedom. Freedom to change careers, start a business, take some time off, or travel the world. It’s not about what I choose to do, it’s about having the freedom to choose.

What is Financial Freedom?

Being free, financially, means you can maintain your desired lifestyle without a regular paycheck. In other words, financial freedom is the 21st-century definition of retirement.

Instead of defining financial freedom as a single point in time, I like to break the concept down into four stages.

Stage 1) No Freedom

Everyone begins the journey by relying on a monthly paycheck. At this stage, a job and reliable income stream is required to pay the bills. Without the ongoing paycheck, any savings could be quickly depleted and you could risk defaulting on your monthly expenses.

Stage 2) Temporary Freedom

To graduate into the temporary stage of financial freedom, you must spend less than your earn and create a pool of savings. Otherwise, you will be forced to continue working indefinitely because your lifestyle depends on your employment income. As you begin to save a portion of your income, you might invest your savings in a diversified investment portfolio to produce a regular stream of income. Or, you might start a passion business on the side, creating another stream of income.

Your freedom grows alongside your savings. Eventually, you will have enough money saved to feel comfortable switching jobs, starting a business, returning to school, traveling for a year, or any number of other activities that are impossible to achieve while working full-time. These can be major life changes, but they are not permanent. Your freedom is temporary until your income exceeds all of your expenses.

Stage 3) Permanent Freedom

At this stage, your total non-employment income exceeds your total expenses and you no longer require a steady paycheck from your employer. You likely have a reliable side business and/or a large investment portfolio producing a substantial amount of income.

Yes, a side business is still labor income. You are trading your time for money. However, my assumption is that your side hustle represents your passion. It’s something that you enjoy doing. Something that you find fulfilling or meaningful.

Fulfillment is the entire point of this article. Financial freedom does not require that you retire early to a life of leisure (unless that is your desire). It’s about having autonomy and independence in your daily routine, allowing you to design a better life while spending your time, money, and energy in a more meaningful way. If that includes starting a new business, great! Doing meaningful work while getting paid is my definition of a win-win.

Stage 4) Luxurious Freedom

This last stage is a concept that is rarely discussed or achieved. While I define permanent freedom as the point at which your income exceeds your expenses, such a definition is shallow and full of important assumptions. For example, if you know that you require $1,500/month to live a barebones lifestyle, and you can safely withdraw between $1,500-$1,600/month from your investment portfolio, you have technically achieved financial freedom. But have you?

What if a budget of $2,000/month would provide a significant increase in satisfaction? Perhaps the additional $500/month could be used for hobbies, entertainment, and travel. All of which make you far happier in your life. But $2000/month in expenses is more than your portfolio can support, which means you’re headed in the wrong direction (back to temporary freedom).

The tradeoff in this scenario is clear. You can continue working additional years to build a bigger pool of savings, which will provide additional income and flexibility for the remainder of your life. Or, you can leave your job as soon as possible and hope that a smaller portfolio will provide sufficient income. It’s all about finding the right balance given your personal situation.

When you have enough passive income to spend freely, that is what I call luxurious freedom. It’s the point at which your income exceeds your expenses by a comfortable margin, allowing you to increase or decrease your spending given your desired lifestyle. You might call it financial freedom 2.0.

Do You Desire Financial Freedom?

Ask yourself these questions (and ask your spouse if you have one):

  • Are you happy with your existing lifestyle?
  • Have you found a meaningful work-life balance?
  • Do you enjoy your job and find purpose in the daily routine?

These can be difficult questions to answer, but they provide a great deal of information about your desire for financial freedom. In my experience, responses can be divided into three categories.

1) Work is meaningful

Some individuals find purpose in their career and have no desire to stop working. That’s perfectly fine and respectable. You can continue working and be financially free – the two are not mutually exclusive.

Even if you have no desire to stop working, I still believe that financial freedom is beneficial. At the very least, saving enough to reach “temporary freedom” can provide peace of mind. There is always a possibility that your job could be eliminated, or your life circumstances change, or any number of concerns that might be partially remedied by financial freedom.

2) Work is meh, but necessary

Another group of individuals is somewhat indifferent about work. If you fall into this group, you probably don’t love work, and it’s not your burning passion, but it’s tolerable and it pays the bills. There are good days and bad days, but the overall trend might be described as neutral and necessary.

In this situation, your preferred level of financial freedom should be inversely related to your overall disdain for work. You should work harder to increase your savings rate and reach financial freedom if you find yourself increasingly unhappy at work, because financial freedom will allow you to change careers or quit the rat race altogether.

3) Work is boring, terrible, and soul crushing

If you find yourself in this group, financial freedom should be your highest priority. If you truly hate your job, you should be willing to make sacrifices to escape. That might include cutting unnecessary expenses, working a side-job, building your human capital, or moving somewhere with a much lower cost of living. You should be saving as much money as possible, so that you can change careers as quickly as possible.

By focusing on financial freedom, your perspective can be transformed. You can go from sludging through 40 years of dreaded employment, to designing the life that you desire. And you can find freedom quickly if you’ll devote your money, time, and energy toward that goal.

The point is this, time (not money) is your most valuable asset. If your time at work makes you miserable, save enough money to quit and go find a new job. Life is too short to be miserable on a daily basis.

Are you Pursuing Financial Freedom?

Given the various stages of financial freedom, and the differing opinions on work, I would love to know where you fall in the spectrum.

Is financial freedom a pressing desire? Or, would you rather continue working and spending your paycheck freely?

For Vanessa and I, financial freedom is our primary long-term financial goal. We appreciate the flexibility and freedom that accompanies a large pool of savings, and we would rather forego consumption than live dependent on a monthly paycheck. Although we haven’t yet achieved permanent (or luxurious) financial freedom, we are in a great position. We are completely debt-free, and have accumulated enough assets to purchase a prolonged period of freedom. And at this point, that’s all that we desire.

The media often portrays financial freedom as an insurmountable task that requires decades of saving and investing. That’s sometimes true, but it’s beneficial to focus on each victory along the way. For example, most people could pay off all non-mortgage debt, and accumulate enough savings to find a new career that is enjoyable. Those are huge accomplishments on the journey to financial freedom that should be celebrated.

Comments
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    • Kc wlllson
    • July 3, 2017
    Reply

    Being free financlally is all i want

  5. Reply

    I very much agree with your post, especially the concept of luxurious freedom. To me, financial freedom is very specific: to have enough money that I can invest it in safe, tax-free assets (mainly municipal bonds issued by fiscally responsible states, arranged in a bond ladder) and have enough income to afford a comfortable lifestyle. I would not fully quit working, but would reduce my workload by about 75%.

    I’m still a ways away, but dreaming and striving!

  6. Nice post. I think a lot of people fall into category 2 (meh) with their jobs so they aren’t motivated to save a lot but they aren’t really fulfilled by their work either. This isn’t a great place to be, especially since #2 tends to shift to #3 over time, not #1!

    The best option is to figure out how to save a lot of your income by really understanding your personal spending vs happiness relationship. You’ll find a lot of spending is not making you happy and you can cut that. Then it’s easy to save, and you don’t need to hate your job to motivate the savings! This is the path I took, helping me reach financial independence around 40. I’m still working to reach “luxurious freedom” (I like your term here), but it’s relatively easy because I don’t mind my job and saving no longer takes much conscious effort. It’s a nice place to be and I highly recommend it!

      • Jacob
      • June 5, 2017
      Reply

      Thanks for reading and sharing your thoughts. I very much agree.

    • Ben
    • June 4, 2017
    Reply

    Hi,

    I think that financial freedom means having no debts and having an investment portfolio which is 25 times annual expenses. Minimialist lifestyle is essential. This includes no car, property. Rent is the way to go.

    Ben

  7. Reply

    Even if I had unlimited financial freedom, I am definitely the kind of person that would still have to have a job. Even in retirement. I feel that part is huge struggle for retirees, needing a job to make you feel useful and like youre accomplishing something.

      • Jacob
      • June 1, 2017
      Reply

      Work can be meaningful and fulfilling, and too much leisure can be problematic at any age. It’s all about finding the right balance in every season of life.

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    • Rob
    • April 17, 2017
    Reply

    Really enjoyed your post! It is a simple idea, income more than your expenses. We figured it out after reading some books, and associating with some mentors. It is not surprising that most people don’t realize that they can “retire” at any age because no one teaches this stuff. All they need is to generate the right kind of income. thanks for the article.

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    • Donald
    • July 5, 2016
    Reply

    Nice post, an inspired one. but what if your job is not giving you anough income that could sustain you and your family let alone saving, like in the case of developing country where unemployment rate is high,what would you do? Or the principle is for developed countries alone. advice.

      • Jacob
      • June 1, 2017
      Reply

      Hi Donald,
      I would say that financial freedom is a universal concept, but the implementation is much more difficult in the third world setting you describe.

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    • Jason
    • February 27, 2016
    Reply

    Hi Jacob,
    Thanks for the inspirational post!
    Financial freedom has been a goal of mine since my early twenties. I always knew that if I were to achieve it I would have to do things differently to my friends. I graduated with a PhD in physical chemistry when I was 25 and instead of getting a normal job I began writing educational textbooks. I figured that creating intellectual property was a good way of creating passive income. In the early days of my writing career I actually worked on a building site, which paid well and meant I could spend the evenings and weekends writing. Fortunately, the books I was writing were selling well so I was able to pay off all my college debt and quit the laboring jobs by the time I was 29. I am now 35 with a fairly large portfolio of successful books which give me a passive income in excess of 100,000 dollars a year. So now for the first time I feel like I can stop working so hard and relax a little!
    My single minded focus on achieving financial freedom has come at the cost of my personal life though. I always defined myself by my pursuit of financial freedom, and before I achieved it I felt like a failure, so I found it hard to let people get close because I was fixated on the person I hadn’t yet become, and I felt that until I became that person I wasn’t loveable…woah that’s deeper than I expected to go! I envy the fact that you have someone with you on your journey to financial freedom.
    Now, I have to rejoin the human race, and begin another adventure! It’s exciting and slightly terrifying, but no one said freedom would be easy!

      • Jacob
      • February 29, 2016
      Reply

      Great input and story here, Jason. Thank you for sharing. You must be incredibly intelligent to get that Ph.D. at 25 (I know because my undergrad was in Chemistry). Do you have any tips that you learned along the way that might help other readers who are trying to reach that freedom?

        • Jason
        • March 1, 2016
        Reply

        Thanks for the reply Jacob,
        I live in the UK, where 25 is a fairly typical age to graduate with a PhD, thanks for your complement though 🙂 .
        If I were to give advice to someone aiming for financial freedom or looking to supplement their income, I would suggest considering the following:

        1. Create intellectual property (write a book, write a song, invent something).
        2. Protect the intellectual property (books are automatically protected by copyright, inventions require patenting etc).
        3. License your IP to a company and receive a royalty on every sale (eg a writer effectively licenses the copyright in his/her book to a publisher in return for royalties. An inventor licenses their patent to a company that manufacturers similar items to their invention, in return for a percentage of each sale).

        Don’t get me wrong, this process requires luck, research, and hard work, and to be honest, I think the majority of people who set off down this road would probably fail.
        But, if you get it right, it is one of the quickest ways to financial freedom and you can earn many times more than in a normal job.
        It’s something to think about :).

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    • Hailey Adams
    • July 14, 2015
    Reply

    Awesome post and well done! You are a very inspiring couple. I’m also working on my financial freedom. My father taught me how to always diversify and stop waiting for the retirement years to do what I want and love.

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    • Jess
    • June 11, 2015
    Reply

    My husband and I started working towards financial independence after we found a really inspiring blog a few years ago. We have both always been great savers and really interested in budgeting and retirement planning. At first, we made small changes and it was mostly something that was fun to talk about. But, as time progresses we find that we are more and more committed and now are well on our way. Not there yet, but it’s pretty exciting!

  25. Reply

    We are definitely moving toward financial freedom. I have a business that I am eventually going to pay someone to run which will provide passive income and we are planning on paying off our mortgage in the next 4 years. Between the two of these, we should be on track to be financially free in the next 8 years!

    • Matthew
    • June 2, 2015
    Reply

    Financial freedom is something I’ve always aspired in youth and adulthood. I read a lot about it (books on the subject are many) and I came to the conclusion that financial freedom should not be the ultimate goal in life. You have to ask yourself what lies behind the desire for financial freedom. I think that in life people usually want to be happy, have a loving family, etc., and achieving financial freedom does not guarantee that. If you do in life what you love, and make money dealing with this, what more do you want?

      • Jacob
      • June 2, 2015
      Reply

      Hi Matthew, I mostly agree with your assessment, although nothing in my article indicates that financial freedom should be the ultimate goal in life, or that it guarantees a loving family or eternal happiness.
      Financial freedom is about using your money and (more importantly) your time intentionally. The nitty gritty details can be interpreted differently by each individual.

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  27. Reply

    Financial freedom is not just desirable, it’s totally doable.

    Not that we are there yet, but if you are young and avoid debt (harder to do than most realize) you can achieve financial freedom! And faster than you think too!

    Great post!

  28. Reply

    This is something my husband and I have started to focus on and give serious thought. Sadly, I don’t think that very many people believe financial freedom is possible. We used to think that way as well. But I have found that if you don’t believe it, then you won’t go for it. Debt doesn’t have to last forever and you can build up your reserves. Through hard work and focus, we are getting there. We firmly believe that it’s not about how much you make, but rather how you control your finances.

  29. Reply

    You guys are crazy awesome….

    Our spending makes us look like drunken congressman by comparison, even though we do our best to live modestly compared to most people in our income/area.

    You guys are inspiring, keep going strong, your blog is a lot of fun to follow!

  30. Reply

    Financial Freedom or Financial Independence is one of my main focuses with money, which works nicely with finishing paying off my student loan debt. I think it puts you in a place to make choices independent of debt, which for many of us is how decisions are influenced. I actually started a page that includes my Financial Independence date, I would love to know what you guys have planned as a FI Day?

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    • Meg
    • April 26, 2015
    Reply

    I do think about financial freedom daily, and I update my net worth daily as well. It does help me stay motivated, but what is harder is trying to figure out what exactly I would want to do differently when I retire (other than just not have to go to work of course). It would help if/when my husband and I can nail down a vision as to how we want to spend our time. Currently we aren’t even sure if we want kids or not which obviously would have a huge impact on our future goals and financial needs!

  32. Reply

    Bravo! One of my all-time favorite Cash Cow Couple posts – captures the big “why” behind all of the “whats” and “hows” that you also teach, which are necessary to achieve it. As far I’m concerned, the word “retirement” belongs back in the 20th century, in the land of employer pensions and (virtually) guaranteed home equities. (Unfortunately, most financial services providers still haven’t gotten the idea, and insist on continuing to try to get young people interested in “saving for retirement” – and the predictable result is the aforementioned blank stare!) Today, switching from 100% work to 100% leisure at age 65 is just one of many choices you can make if you achieve financial freedom – but that’s not a choice that’s drawing much interest these days. Why should it? There’s a whole world of way better – and EARLIER – choices you can make to enjoy your life of financial freedom. Terrific post, Jacob, I’m sharing it all over the place!

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    • Emma
    • February 7, 2015
    Reply

    I’m writing my own post on defining financial freedom right now. It’s certainly got me thinking. For me, the ability to earn an income from anywhere (mainly from real estate rental income) and spend that income in a cheaper country so it goes a lot further seems to be a way to get there sooner.
    One things for sure – you have to be prepared for hard work to get there. And for people to think you are crazy. It seems to scare people when you tell them you are doing something different to the norm.

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  36. Reply

    Enjoyed your article Jacob, couldn’t be any truer! Time is the most important asset of all and if we want to achieve finacial freedom we simply need to live below our means and cut back on the expenses. I got married less than 1 year ago and was obliged to cut back on expenses and I’m happy with my lifestyle. Not easy initially (not referring to the marriage but cutting back on the expenses…lol) but surely possible!

      • Jacob
      • April 20, 2014
      Reply

      Thanks Steven! There really isn’t any secret other than living below your means and saving! Best of luck in the journey!

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    • Leslie Tayne
    • January 21, 2014
    Reply

    Great post! Financial freedom is about enjoying a lifestyle within one’s means. Communicating with one’s spouse is key to mitigating potential financial conflicts. Determine what your wants are and what your needs are. Once you figure this out, you will be better able to see where you are spending most of your money and if it is worth the cost. You may find certain expenses are not worth it. You can save money and be happier!

      • Jacob
      • February 5, 2014
      Reply

      Thanks! You have summed it up quite well, and we definitely agree that honesty with a spouse is of the utmost importance!

    • Sangaff
    • September 5, 2013
    Reply

    Couragious post Jacob! It is a tool to people like me in the journey to financial freedom which means,to me, living to spend as you wish and not neccessarily working for survival. Sangaff

      • Jacob
      • September 23, 2013
      Reply

      Thanks Sangaff! Well said.

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    • Trevor
    • May 21, 2013
    Reply

    Financial freedom is one helluva goal. I think everyone wants it, but most equate it with being wealthy. But like you say, if you’re stuck doing work in order to pay for all your unnecessary things, then you aren’t financially free. You aren’t really free at all.

    I don’t need a lot of stuff. I don’t need a lot of money. I just want to do the things I love and make enough money from them to take a little time here and there. When I want. For whatever reason I want. No vacation requests required.

    To me, that’s financial freedom. I think it’s a modest goal, but still difficult if you’ve been stuck in the traditional working-for-others mindset your entire life. I wish I’d thought of these things when I was as young as you two. You’re off to a great start.

    Cheers!

      • Jacob
      • May 21, 2013
      Reply

      Your definition is a very good one and it’s a great goal. It’s quite similar to ours. The psychology of financial freedom is really fascinating to me as well. From out outside perspective, I can’t believe how much people tend to value stuff. I.e. people continue working a job they despise for the greater part of their life in order to buy it?

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  44. Reply

    “Life is about more than living paycheck to paycheck, or looking forward to retirement at age 70.” — Thou speakest truth. Exactly what Timothy Ferriss says; retirement should be the worst-case scenario and not the primary goal of our short lives. Great article.

      • Jacob
      • May 14, 2013
      Reply

      Thanks Rorschach, appreciate the kind words! Glad you enjoyed it.

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    • Tal Gur
    • May 11, 2013
    Reply

    Good job on this post jacob. My definition of financial freedom is a simple equation: monthly passive income greater than monthly expenses equals Financial Freedom. That’s what I did and i now live the life of my dreams. P.S spending under 12k during your first year of marriage is a great challenge. You definitely found the right wife 😉

      • Jacob
      • May 11, 2013
      Reply

      Thanks Tal, and thanks for commenting. I’ll check out your success on your site.

      And I certainly found a keeper 😉

  47. Reply

    Love and agree wholeheartedly to your definition of financial freedom. For me – it’s means choices. Choices on how I want to spend my money, my time and my energy. Money is the tool I use to create the life I want for me and my family. It might not be the life you’d want or anyone else would, but that’s sort of the point. Financial Freedom gives us the ability to choose how we live for ourselves, not based on what others want or think we should do (that type of thinking is what lands most people in debt). I’m glad you and Vanessa are following your own path and finding so much joy as you continue your journey together.

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    • Troy
    • May 9, 2013
    Reply

    Financial freedom is simply the ability to do what I want to do, when I want to, and wherever I want to. It means that if I don’t feel like working for a month, I can, and can still feed myself! In short, it entails at least $10 million 😛

  50. Reply

    There’s another word for your way of thinking: wisdom. So impressed you guys figured this out so young. I’d like to send you around to every high school in the nation to explain how this stuff works and get young people inspired to live happier, more free lives.

      • Jacob
      • May 10, 2013
      Reply

      We’re willing to go if it’s free! 🙂

    • anna
    • May 9, 2013
    Reply

    I think as long as you’re able to live as you choose and be happy with it, that’s the epitome of freedom! Great post – it undoubtedly displays your enthusiasm for frugal living!

  51. Reply

    “Frugal living is freedom” – AMEN

    By living within (and often below) my means it allows my wife and I to sleep well at night knowing that the creditor won’t be calling and we still are able to plan and budget for fun trips for our kids. We just got back from Disneyland! Great blog, Glad I stumbled upon it.

      • Jacob
      • May 10, 2013
      Reply

      Thanks Kyle, glad you found us. Keep up the great work!

  52. Reply

    Inspiring post, Jacob. My husband and I were just talking about the prospect of hunkering down over the next several years to get our debt paid off (mortgage and car loan). We don’t carry credit card debt and we pay off big purchases immediately. The traditional “retire/have fun when you’re 70” makes little sense to me, especially since we’re in our prime right now and it seems wasteful to put off the best things in life. I’ll continue to mull over this idea — your post was well-timed. Thanks for sharing!

      • Jacob
      • May 10, 2013
      Reply

      That’s a great idea to get rid of that debt. Glad you enjoyed it!

    • Chris
    • May 9, 2013
    Reply

    AWESOME article. Great example of why I read everything you post. Bravo!

    What is financial freedom to me? One word: CHOICES. I’ve achieved financial freedom, so today I’ve got choices. I make mine differently than others would (for sure!), and the future me will make them differently than the past me or the current me. But I don’t have to live with the consequences of choices made by creditors, bosses, or the Social Security Administration.

    • Ree
    • May 9, 2013
    Reply

    I’m so amazed at how wise and willing to sacrifice you and your wife are at such a young age. My mentor, although much older now, was just like you. I was the spender. It took me until my early 30’s to “get it” and while I never was frugal to the level that you and my mentor are, I was still able to achieve a lot in 20 years (pay off the house, save a lot).

    While my goal of financial freedom is still looming I have a lot more freedom and CHOICE than ever before. That means for today, I’m debt free, I don’t have to work a job I hate and I’m relatively stress-free. Total financial freedom means all expenses are paid through passive income…that is still on the horizon but not far off!

    Ree

      • Jacob
      • May 9, 2013
      Reply

      Thanks for such kind words. Seems like you are doing well and have an excellent mindset. Keep it up!

    • cj
    • May 9, 2013
    Reply

    Abso-freakin-lutely! Time and our time together trumps all else. Why sully up our time together with stuff and having to earn more for it?

      • Jacob
      • May 9, 2013
      Reply

      Well said CJ!

  53. Reply

    This a great definition of financial freedom. Money is a tool that gives you choices if you use it well. Not everyone will want to make the same choices, but wouldn’t you want the option to decide how you spend your time? You guys sound like you have an awesome mindset.

      • Jacob
      • May 9, 2013
      Reply

      Thanks Matt, appreciate the kind words!

  54. Reply

    My husband and I have definitely started to be more frugal since both of us left the corporate world about a year ago. He is doing what he loves and is passionate about, yet I am still floating around working random jobs, trying to start my own business. In the meantime, I have to worry about paying my credit card debt (and avoiding their calls!) and student loans (for that master’s degree I’m not using!) I am stressed out every day and am seriously considering cashing in my retirement (which would allow me to pay off all my credit card debt). I don’t want to work until I’m 80, but I’ve also always lived paycheck to paycheck. I always thought I would “catch up,” but teaching was not a profession that was going to allow that to happen.

      • Tammy
      • May 9, 2013
      Reply

      Hello Abby, my husband and I were both public school teachers with credit card debt and student loans. We just paid them all off – even after leaving teaching to start our own businesses and decreasing our income. It can be done, so keep paying down that debt. We had many money meetings and stopped spending. We are happy and healthy and have never looked back. Don’t give up!!!

      @Jacob, a fine, fine post! We would like to be doing more of what we want to do and not what we have to do. I think loving what you do and adding value to the world is our goal. We have to question every ought, should, and must that comes our way, but it’s SO worth it. My goodness, we needed friends like you when we were 23!

      • Jacob
      • May 9, 2013
      Reply

      Dang Abby, sorry about the temporary setbacks. You seem like a really intelligent woman, so keep grinding a hustling. I’d definitely try to avoid pulling the retirement funds though! You’ll get hit with a penalty and you’ll never get to put that money back in…

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