I thought this might be a good topic while we are all excited and going through transformative financial changes, on the positive side. In the bear market almost nobody would probably be interested in the subject. Although financial freedom is an an ongoing target.
First of all, what is financial freedom?
Having enough liquidities and / or passive investments to allow you and your family the freedom to keep your life standards (or the standards you decide upon), without being financially constrained to work another day in your life. That's one definition of financial freedom. But other more personal interpretations always make it interesting.
As I see it, there is a simple blueprint to achieving it. Simple, but not easy. Far from it apparently.
Stop thinking of your income. Start thinking of your net worth.
You CANNOT achieve financial freedom if you think in terms of income and spendings.
Thinking about income is like making short term investments. They are... short term. You'll have to keep generating income actively to your retirement and maybe beyond to sustain your lifestyle.
For rich people there is no connection between their income and their net worth. They are only interested in increasing their net worth, not their income. And nobody knows their income, including them, but everybody knows their net worth.
Calculate your net worth. Update it occasionally and remember it.
Net worth represents assets minus liabilities. Otherwise said, what you own less what you owe.
Here's an online calculator for net worth. Of course, they haven't heard of crypto yet as a separate asset class, but you can add them to the "other"/"other debt" categories.
I happen to disagree with their interpretation of assets and liabilities to some degree, but I see these are pretty standard.
For example, they include unleased automobiles as assets. That makes sense, because you can sell them.
But, at the same time, we all know a car costs the owner a lot: gas/electricity, assurance, regular service, tire changing, fees and tickets, etc. That without counting potential damages uncovered by assurance.
Right now, I see a car as a liability, not an asset. It constantly adds costs, while its value often drops like a rock after the first two years, if you are uninspired and buy it new. But it doesn't seem to make sense to quantify it as a liability on the net worth evaluation.
Interestingly, that's proof I haven't reached or even came close to achieving financial freedom yet.
As we reach a solid financial freedom, we won't pay much attention to these regular costs, which we already have accounted for. Therefore you see cars as assets and that's it.
Protect your net worth at all times
This is extremely important!
To achieve financial freedom, and after reaching it to keep it, you need to protect your net worth.
You can do that by diversifying, but not overdiversifying to the point you can't keep track of your investments. So, in some cases, if you are overdiversified, it can be a good idea to consolidate and focus on a few proven investments.
You can do that by understanding cycles in crypto and protecting against bear market.
You can do that by taking some profit out when a business/asset seems to become overheated.
Increase your net worth over time
Unless you are already rich, to achieve financial freedom, you need to increase your net worth.
Before you reach this status, you have to include both active and inactive investments in your plans.
It's important to set a deadline by which you want to become financially free or independent.
That helps in at least two ways. Firstly, because it's a goal and you will thrive to achieve it.
Secondly, because you'll have to transition from active/passive investments to mostly passive investments or passive investments + liquidities. That assuming you want to retire or take a less prominent role in active investments after you become financially independent. And in this case, a deadline helps.
Closing words
I wrote this post to be helpful to me as well, on my journey towards financial freedom.
From the experiences of others, it's quite difficult to achieve such a status, and if you do, to keep it. We are prone to making many or huge mistakes, especially when our net worth grows exponentially in short time frames and we haven't visited those highs before.