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The True Cost of Low Interest Rates Andrew Snyder, Editorial Director, The Oxford Club
Editorial Note: This week's essay originally ran in March with the headline "Freedom vs. Liberty." It's a concept we address regularly at Investment U, because it's central to our core mission. While so many are willing to accept mediocrity... to simply contribute to their 401(k) and pay off their credit card each month... we aim for something better.
That's why, week in and week out, we provide the tools and wisdom necessary to achieve liberty through wealth. Andrew does a great job explaining the difference between this idea and its more talked-about cousin - "financial freedom" - below. While he's off enjoying a well-deserved family vacation, we wanted to give readers a second chance to take in his words.
 We often hear about the idea of "financial freedom." I argue it's the most overused and ballyhooed phrase in the personal finance industry.
In fact, following most of the mainstream advice that supposedly leads to financial freedom leads to nothing but mediocrity.
Pay off your debt... Create a budget... Save your money...
Hmmm... Earth-shattering ideas, right? That must be how Buffett made his fortune.
Let me explain all of this in a different way. When I'm done, I think you'll clearly see where so many of these debt-free, get-rich-slowly pitches go wrong.
Let's start by defining two key terms: freedom and liberty.
We often think the two terms are interchangeable. Really, they are not. There are critical differences. Understanding them will change the way you think about money.
Freedom is a word with German origin that simply means the ability to make decisions or perform actions without external control.
But liberty, with its French roots, means freedom that has been granted by some sort of external element, typically our society or government.
Boiled down... freedom is something we are born with. Liberty is something we must fight for.
For example, America's Founding Fathers believed freedom was a God-given right, and that it is up to the government to grant its citizens the liberties to take advantage of that right.
But we argue they got it wrong. Yes, it's up to some sort of external force. But no government will ever grant true liberty.
The true answer is wealth. Nothing has liberated more people than wealth.
At this point, I hope you're seeing huge gaps between the ideas of financial freedom and liberty through wealth.
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By the very nature of our being, we all have the freedom to travel where we want and when we want, and to do what we want. We simply don't have the liberty to do it. And it's not our government holding us back.
It's our wealth.
Likewise, we're all free to pick the occupation we want. There's no law that says "America's Founding Fathers believed freedom was a God-given right, and that it is up to the government to grant its citizens the liberties to take advantage of that right.
"But we argue they got it wrong. Yes, it's up to some sort of external force. But no government will ever grant true liberty.
"The true answer is wealth. Nothing has liberated more people than wealth." | |
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one person must be a teacher and another must be a doctor. If we've got the freedom, then why are most folks toiling at a job they don't love?
You know the answer... It's because their wealth has not liberated them.
In his book An Embarrassment of Riches, The Oxford Club's Chief Investment Strategist Alexander Green lists four primary benefits of wealth accumulation. They are all forms of liberty.
The first is that, if you have money, you don't have everyday anxieties about it. "Folks who aren't sure they can make the rent, afford insurance or ever retire comfortably," he writes, "are plagued by worries that never cross the minds of those with some level of financial security."
Money offers peace of mind. It's liberating.
The second is that money liberates you to pursue your passions.
"One of the reasons I was able to save a lot as a young man," Alex says, "is that my primary pastimes were reading, swimming, tennis and hiking. These require very little financial commitment." Because he focused on low-cost activities, it wasn't hard for Alex to liberate his passions, even with the limited wealth of youth.
But as we mentioned above, it's not just our hobbies. Financial liberty also gives us the ability to take a job that may be less lucrative but more fulfilling.
Third, we're all free to spend as much time with friends and family as we like. But it's money that truly liberates the idea. Only with wealth can you take advantage of your freedom.
"And finally," Alex writes, "money is not just about doing well. It is also about doing good. You can aid a friend or family member who needs a helping hand. Or you can donate to some worthy cause." Again, we're all free to give until it hurts. But only wealth offers the liberty to make it happen.
Of course, all of this begs a very tough question. How do you get there?
The answer, from my own experience, is where the idea of "financial freedom" fails and "liberty through wealth" thrives.
All those high-polished pitches for financial freedom are not wrong. But they are far from right. They'll get you out of poverty, but they won't get you where you truly want to go.
They won't push you above mediocrity.
To escape that trap, you absolutely must think differently. It takes risk. It takes a shrewd understanding of the markets. And it takes a very real commitment to build wealth.
You already have freedom. You were born with it. Now you - and only you - must liberate it.
Good investing,
Andrew Snyder
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