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ARTICLE - Being Financially Free vs. Being Debt Free

Updated: Mar 26, 2023

Have you ever considered that there could be a difference between being financially free and being debt free? Which one sounds better to you? Could you be one without the other?

In my opinion, there’s no contest here. Having no debt sounds great on the surface to many people, but if you also have no assets then the life of your dreams is going to still feel a million miles away. On the other hand, financial freedom is what the life of our dreams is built upon, the foundation of everything else we could aim to achieve or experience.

Being financially free is the ability to have enough money to meet your needs (and wants) and live the life you desire without constantly worrying about money. It is the ultimate goal for many people, as it allows for a sense of security and peace of mind. It’s also extremely elusive for the majority of people, especially in today’s instant-gratification culture.

Dave Ramsey is one of the most well-known financial gurus in the US today, and a mantra of his includes paying off not just auto and credit card debt, but also mortgage debt (our homes). I believe this makes sense for many people, and I absolutely agree that any credit card (bad) debt should be eliminated immediately. But mortgage debt is the cheapest of all debt, and it comes with tax breaks as well, which makes this very “good” debt in my opinion.

I decided when I was 22 and just out of college that I wanted to be $1,000,000 in debt by the time I was 30. I wanted to do this by investing in assets such as rental properties, and then borrowing as much money as I could against them from the banks. By doing this, I was building my personal balance sheet, pocketing the cash flows that came from the monthly rent payments, and letting the tenants pay down the debt for me. By age 30 I had reached my goal several times over, and was planting the seeds to ultimately become financially free through real estate investing, though I was far more in debt than most people would ever guess or be able to imagine!

Investing, then, is in my mind a huge component or even prerequisite of achieving financial freedom. Investing your money allows it to grow and if done well can provide a source of passive income for you. This is money that you earn without actively working for it, or without having to trade your precious time for dollars.

Time is the most precious resource that any of us has, and there’s only so much of our time that we can trade for a paycheck. If we can’t get our money working for us, rather than us forever working for money, then the “rat race” of life may end up being a lot longer than many of us would prefer.

One of the main reasons why being financially free is better than being debt free is that it gives you more options to live the life you choose. When you are financially free, you have the ability to invest in assets that can generate this passive income, which can provide you with a steady stream of dollars, even when you are no longer actively working.

Being debt free, on the other hand, simply means that you don't owe any money to anyone. While this can certainly be a good thing, it doesn't necessarily imply or ensure any level of financial freedom. You may still be living paycheck to paycheck, and may not have the resources to invest in things that can generate passive income to support your lifestyle.

Finally, being financially free can give you a sense of freedom and control over your life. When you don't have to worry about money, you can focus on the things that are truly important to you, such as your family, your hobbies, and your career.

So while being debt free can certainly be an admirable goal, being financially free is ultimately considered to be more desirable. It gives you more options, more security, and a sense of freedom and control over your life. If you're looking to improve your financial situation, focus on becoming financially free, not just debt free.

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