Financial Freedom VS Financial Confidence [Explained]

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Stuck between financial freedom and financial confidence? You have come to the right place. This article will help you understand the deep roots of both concepts.

Prefer reading the complete article for a clear and better understanding of the differences between financial freedom and financial confidence.

In case if you are not interested in the extra information, then you can directly jump to Financial freedom VS Financial confidence.

What is financial freedom?

Freedom in simple words can be described as the power or right to act, speak or think as one wants.

So, financial freedom can be defined as the power or right to spend, invest or use your money as per your choice without any pressure.

It is a subjective concept. For some, it can mean spending money freely without worrying about running out of it.

On the other hand, for some people, it is not about earning millions or billions rather earning satisfactory income and having total authority over it.

The interesting part is that even after being a subjective concept, eight stages of financial freedom can be given based on basic human needs and wants.

Eight stages of financial freedom

  • Not living hand to mouth
  • Enough money to quit your job (for a while)
  • Financially happy and still save
  • Freedom of time
  • Enough for a basic retirement
  • Enough to actually retire well
  • Enough for dream retirement
  • Money more than you could ever spend
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First stage: Not living hand to mouth

The first stage of financial freedom involves the creation of an emergency fund for contingencies. To do this, you absolutely need to be debt-free first.

As per the results from a survey conducted by PYMNTS and LendingClub in June 2021 woefully, about 54% population of the US lives paycheck to paycheck, and around 40% of households are not capable of footing a contingent bill of $400.

There are always chances of some unexpected bills like vehicle repairs, unavoidable parties, medical bills. To face such situations emergency fund will help you to be on the safer side.

Second stage: Enough money to quit your job (for a while)

Your productivity increases when you understand that working is an option and not an obligation.

Quitting your job either for an extended vacation or for starting something new should not look “out of the question.”

Third stage: Financially happy and still save

We all work dreaming to earn enough to enjoy our lives and not just make both ends meet.

It is a soothing feeling when you save enough, do the things you enjoy, and then also have extra at the end of the month.

Fourth stage: Freedom of time

We earn to spend. What if you are earning and do not have time to spend? You want to take your family on a vacation but cannot do that because of a hectic work schedule.

You want to follow your passion along with a side hustle, but just cannot because that side hustle eats up the majority of working hours.

Freedom of time and financial freedom go hand in hand.

Fifth stage: Enough for a basic retirement

This stage involves the concept of FIRE, FIRE being an abbreviation for Financial Independence, Retire Early. It is a lifestyle becoming popular in the West with people in their 20s and early 30s.

The concept of FIRE involves penny-pinching along with people deliberately maximizing their saving rates either by finding ways to increase their income or lowering expenses.

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The aim is to save 50-75% of the income and use it for creating assets and generating sources for passive income to provide for retirement expenses.

Sixth stage: Enough to actually retire well

Believing that you have attained the desired standard of living, what would you need to maintain the same standard even after retirement?

So, knowing that you are on the right track to accumulating the nest egg is a triumph.

Seventh stage: Enough for dream retirement

Assuming that you are retired and have nothing to do, no hectic schedules, no meetings, nothing.

So what would you do, I think sitting idle cannot be the answer. Probable answers can be traveling more, enjoying more with family and friends.

Traveling across the globe, flying first class, staying in 5 or 7-star hotels does not come cheap.

How soothing it would feel knowing that you are on track to have enough money to retire and live your dream life.

Eighth stage: More money than you could ever spend

Even after lavishly spending your money and maintaining a luxurious standard of living rest of your life, you will not run out of money.

Nothing can sound better than this. Hence, this is the most exclusive stage of financial freedom.

What is financial confidence?

  • Confidence means the feeling or belief that one can have faith in or can rely on someone or something.
  • So, financial confidence is feeling sure about your earning abilities.
  • It is about knowing that no matter where you go, you will be able to earn. Believing that you possess such skills for which you can be paid.
  • It increases with every financial decision taken which turns out to be rewarding and enhancement in earning capacity.
  • It plays a crucial role in making you self-reliant.
  • There are three basic measures of financial confidence.
  • Self-efficacy
  • Self-assurance
  • Self-determination

Self-efficacy

It is about-  

  • whether you believe that you can earn yourself a living.
  • whether you believe that you are capable of making reliable and effective financial decisions.

Self-assurance

It is about-

  • whether you believe that you can fruitfully spend the earned money i.e. to generate genuine sources of passive income.
  • whether you believe that you will be able to act on the financial decisions taken by you.
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Self-determination

It is about-  

  • whether you are determined or have the willpower to take control of your earned income.
  • whether you dare to bear the consequences of any investment financial decision gone wrong. 
  • Checking where you land in between these three measures can help you know how much financially confident you are.
  • Financial confidence is an important factor as it impacts the key decisions of life, related to monetary terms.

Financial freedom VS Financial confidence

You have already gained information about attributes of respective concepts. The table given below will make you even more clear with the roots of them.

Financial FreedomFinancial Confidence
Financial freedom is a destination, where we all want to reach as soon as possible.Financial confidence is just a checkpoint, which lies in a path leading to financial freedom.
It is an illusion for most people because human expectations keep rising which results in continuous up-gradation of living standards.It is real because once you get the confidence that you can earn, you will not lose it altogether, rather it increases with time as you acquire new skills.
It is the outcome of the process of building financial confidence.  It is a byproduct of the activities in which you are involved due to your desire to attain financial freedom.
It is about having the desired amount of money or passive income sources.It is about knowing that you can have the desired amount of money or passive income sources.

Final thoughts

The conclusion is if you know that you can attain financial freedom then you possess financial confidence. Without being financially confident financial freedom cannot be achieved

You can have financial confidence without having financial freedom but if you have already accomplished financial freedom according to you, then you are financially confident as well.

At first, both concepts are mutually exclusive but after entering into the zone of financial freedom, both go hand in hand. 

So, the aspects covered in this article are-

  • What is financial freedom?
  • Stages of financial freedom:

1. Not living hand to mouth

2. Enough money to quit your job (for a while)

3. Financially happy and still save

4. Freedom of time.

5. Enough for a basic retirement

6. Enough to actually retire well

7. Enough for dream retirement

8. More money than you could ever spend

  • What is financial confidence?
  • Measures of financial confidence:
  • Self-efficacy
  • Self-assurance
  • Self-determination
  • Difference between financial freedom and financial confidence

Hope we were able to serve you with the desired useful knowledge. We would like to answer your queries if any then the comment box is open for you. If you found this article useful then do share it with the people who may require the same information.

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