Millions of people have benefited from Dave Ramsey’s Financial Peace courses.  Financial Peace training deals primarily with debt and saving money.  And, it does not specifically address financial freedom.  However, if you’ve dealt with debt and are saving money, you are in a great position to experience a bigger financial future, a future of financial freedom.  In this article I will teach you a simple strategy to grow from Financial Peace to financial freedom.

In this article

What is financial peace?

What is financial freedom?

The key to financial freedom

Good debt vs bad debt

The power of leverage

The dangers of leverage

Risk in investing

How to get started

What is Financial Peace?

I think Dave Ramsey has done a great job at teaching millions of people basic personal finance concepts.  Most of what he teaches is good common sense.  He also does a great job of keeping things simple. 

I believe that part of Dave’s success can be attributed to his focus on one critical group of people.  This group of people is primarily composed of those struggling with debt and striving to save money.  Not surprisingly, the focus of Financial Peace courses is really about paying off debt and saving money. 

Big kudos to all the people that have tackled debt and are now saving money.  That is not an easy task. Indeed, getting to this stage should bring people immense financial peace. 

But I also believe that in order to avoid sending mixed messages Financial Peace teachings are deliberately conservative. An example of this may be a strong emphasis on paying off a home mortgage. 

Although this may be perfectly fine for many in the Financial Peace audience, others may be willing to consider using some of their home equity to pursue financial freedom. And for sure, using savings to invest should not be controversial at all.

If you want to learn more about the David Ramsey’s teachings, I’d like to recommend this other article titled ‘Dave Ramsey’s Baby Steps‘ from Millenialmoneyman.com

What is Financial Freedom

To me, financial freedom is being in a financial position where I don’t depend on an employer for a paycheck.  It also means having sufficient income, to the point that I am free to do some travel and live the life I want to live.   

And by all means, this doesn’t mean I need to retire.  But, it may mean that I do only the type of work that brings me pleasure and that I work on my own terms.

However, having a large lump sum of money in savings or in mutual funds to draw from is not an ideal answer.  That’s because among other things, a lump sum of money is simply a finite amount of money that I would have to make sure I don’t outlive. 

Instead, I would much rather have multiple sources of cash flow from assets such as real estate, or online properties, that will continue to produce cash until I decide otherwise. 

In other words, financial freedom is having enough monthly income to cover all my expenses, fun money included, and for the rest of my life.

But how can the average person get to that stage?  Well, that’s exactly the point.  Getting from Financial Peace to financial freedom isn’t that difficult.  In fact, all you really need now is the proper financial knowledge.    

The Key to Financial Freedom

If you are new to this website, I highly recommend you read the article titled ‘The Bridge to Financial Freedom.’  The bridge to financial freedom has three main parts, the foundation, the substructure and the superstructure.  The bridge foundation provides financial protection.  The bridge substructure provides financial growth, and the bridge superstructure, provides cash flow.

Indeed, the key to financial freedom is having multiple sources of cash flow!  This is part of the bridge is shown above, in green. Again, this is the bridge superstructure.  To construct this part of the bridge, it is necessary to use a support system (or financing leverage). This is shown in gray.

Examples of sources of cash flow are, income real estate, online properties, mutual funds, etc.  However, before building the bridge superstructure, it is first necessary to have a sound foundation and bridge substructure. 

But the truly exciting part for those of you that have benefited from the Financial Peace courses is that you have already build two thirds of the bride to financial freedom! 

More specifically, you already built the bridge foundation because you’ve dealt with debt, you have established an emergency fund, and have sufficient insurance protection.   

Chances are you have also built the bridge substructure, because you’ve been putting money into a retirement account and you probably have money in some mutual funds. 

Your next step is to begin acquiring cash flowing assets, and you are in a great position to do so.

The image below shows two stages of bridge construction. The first phase illustrates the financial peace phase. The second phase illustrates the financial freedom phase.

Good Debt Vs Bad Debt

Before we get too far into acquiring cash flowing assets, we need to address a fundamental concept that may require a serious mind shift.  Through your Financial Peace training, you’ve been taught to get rid of all debt.  And as I indicated before, that may be a good strategy for a large majority of people taking Financial Peace courses. 

However, without utilizing debt in a positive manner, you’ll be extremely limited in your ability to acquire sufficient sources of cash flow, to gain financial freedom.  

Which brings me to the concept of good debt.  In short, debt used to acquire a cash flow producing asset, where cash flow is sufficient to cover all debt and expenses, is good debt. 

Assume an investor uses savings of $40,000 as down payment and a loan of $160,000 to buy an income producing property, at a price of $200,000.  Let’s also assume that the net income, after paying all debt and expenses, is $4,000 per year. 

In this example, the investor has debt of $160,000.  However, this debt is actually making the investor $4,000 per year.  This my friend, isn’t a bad thing.  This is good debt, because it is making the investor money after, after paying all debt and expenses.

The Power of Leverage

In the example above, the investor used $40,000 to purchase a property worth $200,000.  This alone is leverage, but let’s expand on this.  If this property appreciates in value, its appreciation affects the entire $200,000 value, and not just the $40,000 the investor put down.  In other words, if the property appreciates at a rate of 1% per year, this property will appreciate by $2,000 in the first year, thanks to leverage. 

Indeed, that’s an additional $2,000 per year gained in equity on top of the $4,000 per year gained in income.  Or said differently, that’s $6,000 per year on an investment of $40,000.  That’s an amazing 15% return on investment.  Yet, this doesn’t even account for other potential benefits arising from principal reduction, taxes, depreciation, etc. 

The Dangers of Leverage

As you already know from your Financial Peace learning, leverage can be a dangerous thing, if abused.  In fact, Dave Ramsey himself learned a very expensive and valuable lesson when he over-leveraged and lost big in real estate.  Which, is part of the reason why he became extremely cautious about debt. 

One of the reasons why people get in trouble with leverage is because the temptation is too great.  And that’s because leverage can significantly multiply profits and wealth in a short amount of time. 

So, yes, too much leverage can be dangerous.  However, the good news is that you have the liberty to decide how much leverage is too much for your situation.  You alone get to pick your risk level. 

Let’s revisit the example above.  Let’s say that instead of putting a down payment of $40,000 you decide you want to put down $80,000.  In that situation you’ll have a lot more equity in the property and you’ll have bigger cash flow.  And in this case you reduced your level of leverage and overall risk.

On the other hand, if you are very confident in your financial ability, and/or a given investment, you may also be comfortable putting down $10,000 instead.  In that situation, you’ll have less equity in the property and you’ll have smaller cash flow.  And in this situation you’ll have a higher level of leverage and risk. 

Risk in Investing

When it comes to investing, there are multiple forms of risk.  Whether you own mutual fund, stocks, real estate, etc. you are exposed to some form of risk.  Part of becoming a successful investor is understanding and managing risk.  And determining how much leverage an investor is willing to use is part of understanding and managing risk. 

Although some may think mutual fund investing is less risky than real estate investing, the opposite could very well be true.  It all comes down to things like price, valuation, market forces, etc.  And these are all things that must be considered when determining how much risk an investor is willing to take.

For example, an investor may be comfortable with a higher level of leverage when investing in a real estate property that has little risk in other areas (i.e a solid cash flow performance).  A subsidized rent, income property, can be a good example.  In fact, many income real estate investors like subsidized rent income properties, precisely because cash flow is very consistent. 

And always remember, you don’t have to invest in anything until you are fully satisfied and at peace with your decision.  In fact, you can take your time to invest, because your finances are in great shape, thanks to your hard work and thanks to your Financial Peace training. 

How to Get Started

Now that you’ve decided to go from financial peace to financial freedom, the single most important thing you can do to get started is to gain financial knowledge.  This includes learning about wealth creation and management strategies, learning about different cash flow investments, learning how to determine valuations, learning about financing, etc. 

There are two particular things I’d like to recommend.  First, I’d like to recommend you read the book Rich Dad Poor Dad by Robert Kiyosaki (see link to sponsored ad below).  This book will expose you to a different way of thinking than what you learned in your Financial Peace learning.  Among other things I believe this book leans a lot more toward financial freedom than any of Dave Ramsey’s teachings. 

But be forewarned, you may find Robert Kiyosaki’s advice to be a bit aggressive.  That’s okay.  All I’d like you to do at this point is to be open to a different point of view than what you were taught in you Financial Peace courses. 

The second thing I’d like to recommend is for you to read the article linked below, titled

‘How to Improve Creative Thinking in Business to Get Win-Win Deals‘

This article discusses what I call a ‘what if’ strategy.  The idea is to use this strategy to remove mental barriers.  This will unleash your creative thinking and will help you see deals in places where you have not even considered them before. 

But perhaps most importantly, by engaging in this exercise, you’ll begin taking some action.  In this stage you’ll start looking at potential investments, which will lead to meeting with sellers, viewing properties, learning to evaluate different types of assets, etc.  

The Bottom Line

The bottom line is that if you’ve applied Dave Ramsey’s Financial Peace courses to your finances, then you already have a solid financial foundation.  That’s because you have probably already constructed two thirds of the bridge to financial freedom.  And the third part of the bridge to financial freedom is actually easier.  In fact, you are in a great position to go from Financial Peace to Financial Freedom. 

In short, the key to financial freedom is having multiple sources of cash flow.  Acquiring such assets will in most cases require leveraging your capital.  This can be done in a measured manner that matches your risk appetite and as to not over leverage your overall situation. 

Ultimately, you get to call the shots when it comes to leverage, risk, price, and everything else.  And although the idea is to go from Financial Peace to financial freedom, the intent is that you experience both peace and freedom. 

If this article has helped you in anyway, please post a comment below.  In doing so, you will likely be of help to others visiting this website.  In addition, please consider sharing this article in your favorite social media platform.  You can also follow me on Twitter at @Cash_Keen.

Stay hungry my friends!