Why a bridge to financial freedom? Most people see an unsurmountable financial gap between where they are and their dreams of financial freedom and independence. The gap may appear daunting if your instinct is to go into the canyon and then climb a wall to get to the other side.

Instead, envision a nice and wide structure bridging this gap. Now I realize building a bridge may also feel overwhelming, but like most things, all it takes to build the bridge to financial freedom is knowledge. With knowledge and the right strategy you too can build this bridge and reach financial freedom.

Trust me when I say building a bridge is not complicated. I know because I am an engineer by profession. And bridge building is my specialty. A simple bridge is made out of three main parts, the foundation, the substructure, and the superstructure.

The foundation of this bridge provides security and financial protection. The substructure provides growth. The superstructure provides cash flow.

In this article:

• What is financial freedom?
• Why pursue financial freedom?
• What is the bridge to financial freedom?
• 1) The bridge foundation is about security – Paying off bad debt, protection for emergencies, inflation proof assets.
• 2) The bridge substructure is about growth – Retirement, college savings, investing in growth assets. 
• 3) The bridge superstructure – Multiple sources of cash flow (preferably real estate)
• The value of a mentor
• The bridge timeline – Begin your timeline today

What is Financial Freedom?

Financial freedom or financial independence are terms used to define an economic position reached by an individual where said individual does not depend on income from an employer and/or traditional employment. This can happen when the individual has enough cash flow from investments to cover all living expenses. And/or the individual has enough funds saved to cover all future living expenses.

See Financial Freedom Definition for a more in depth analysis.

To me, reaching financial freedom means reaching a level of financial success where I am free from financial worries. And it can also mean having sufficient freedom to travel and do other fun things with my time.

Why Pursue Financial Freedom?

Even if you love your job, depending on an employer for a paycheck isn’t fun. It certainly isn’t freedom. On the other hand, imagine you have a source of passive income – perhaps some home rentals. And imagine that that income is actually enough to cover your expenses. In this latter example, you don’t depend on an employer. You are free! And in this case, you can still work for that same employer if you really enjoy your job.

Furthermore, imagine your passive income is large enough that you are able to travel, pay for your kid’s college, and even leave a legacy. Without a doubt, this would be much better than depending on an employer and then possibly not having sufficient freedom to travel or do other fun things during retirement.

What Is The Bridge to Financial Freedom?

In earlier articles I wrote about the importance of learning from other financially successful people.  And I also wrote about being self-aware – being able to see what we haven’t seen before and to recognize when we need a kick in the pants. 

In terms of the bridge analogy, I believe these areas help us first to recognize where we came from and where we are.  Second, they help us establish a vision of where we want to go – financial success.  And third, they give us awareness to help us know our strengths and weaknesses as we construct the bridge to financial freedom.

That part of the journey alone is of utmost importance, because without it we would be doing the same things we were doing before. The key is to gain self awareness, gain the knowledge and put things into action. With this in mind, let’s look at what it takes to build a bridge.

The Financial Bridge Foundation Is About Security and Protection

A bridge foundation is normally not visible, as it is deep into the ground.  That’s because, the foundation for a bridge needs to sit on solid ground.  Indeed, this means we will need to dig out the soft material below the surface.  What might that soft material be? You guessed it.  It’s bad debt. 

Addressing Bad Debt

There are two kinds of debt, good debt, and bad debt.  Any debt that is not contributing to you growing your net worth or cash flow is bad.  For example, bad debt includes debt such as credit card debt, car loans, student loans, etc. 

There are plenty of resources in the form of books, websites, courses, etc. on how to tackle debt, but for the most part it all boils down to setting goals, establishing an aggressive budget and sticking to it. I wrote an article where I share some simple strategies about dealing with bad debt.  

But, here are some general thoughts; If you have credit card debt, then stop using credit cards and start using cash to pay for purchases.  Also, get rid of things and services that aren’t necessary.

The point is to reduce your expenses and start living frugally.  For example, get rid of cable TV, pack lunches to bring to work, limit eating out, stop going to Starbucks for coffee, etc.  In fact, an average Joe can easily save over $18,000 by tackling some of these things. You can read more here: 10 Expenses You Must Cut | Get rid of debt & Save Money Fast

Good debt on the other hand is leverage.  If you took out a mortgage to purchase a real estate property and that property is producing positive cash flow, then that is good debt.  However, be mindful that if you have too much leverage you also have too much risk.  The last thing you need is to lose everything because you leveraged too much. If you are over leveraged, you run the risk of one small problem creating a chain of events that disrupts your entire plan.

Saving for Emergencies and Having Insurance

After addressing debt, it is time to start constructing the actual foundation.  The most important part is to start saving money and ensure you have proper insurance in case of an emergency.  This is because you need to be protected from going back into deb if your car breaks down, or you have a medical emergency. 

Save as much as possible.  I’ve seen recommendations ranging for savings ranging from 10% to 40% of income.  Another recommendation is to save three to six months worth of expenses. You can read more at ‘Financial Freedom Strategy – Saving for Emergencies.’

However, consider that saving money by depositing it in the bank is not necessarily the best idea. There are two reasons for this. First, money is always depreciating.  At any point in our lives we could experience a financial crisis and paper money could easily become worthless.  Second, money in the bank is not working for you. 

Also, start thinking about diversifying from money in the bank to inflation proof assets.  I highly recommend you consider gold and silver as a form of diversification, but always be on the lookout for other opportunities.   In an effort to provide keen investors with comprehensive knowledge, I recently wrote an article titled ‘Reasons Why You Should Own Gold.’ But, in short, gold is a financial hedge, a safe haven, it can grow in value, and it is a great way to diversify a portfolio.

The Financial Bridge Substructure Is About Growth

Next, it is time to start constructing the bridge substructure.  This part is composed of bridge abutments (the structures at the end of the bridge) and columns.  Now you will finally be working above ground, where things are more visible.  This is the where you focus on funding your retirement account, investing in growth assets, and possibly saving for college. 

Funding Retirement & College Savings

Take the time to understand the retirement program offered by your employer.  In most cases it makes sense to max out your allowable retirement contributions, especially if your employer matches your contributions.  Similarly make sure you understand other benefits such as Health Saving Accounts.

Certainly, Some people may have a higher risk tolerance and may want to defer funding their retirement. After all, not putting money towards retirement, should make it easier to save for an upcoming investment.  I highly recommend you don’t neglect funding your retirement.  However, if you are experienced in finances and you have a good plan, then perhaps you can get away with deferring funding your retirement. 

The same logic may apply to saving for college.  If you have a higher appetite for risk, you may choose to defer saving for college.

Speaking of college, is college worth it? The reality is college is not the grate investment many claim it to be. I’ve done an in depth analysis of this and have concluded that college can be a good investment for those pursuing certain majors (i.e. engineering, medicine, law, etc). College is not a good investment for those pursuing literature, history, arts, etc.

Investing in Growth Assets

You now have an emergency fund that you established during the bridge foundation phase. As such, you are able to start looking into growth assets such as mutual funds.  As always, study this and other forms of investments.  Open an account with a brokerage firm and set it so that you are making regular contributions that come directly out of your pay check, every pay period.  In the beginning I strongly suggest to stay away from stocks. 

I’ve tried funds, stocks, and options.  Out of all of those, I was most successful with mutual funds.  I’ve lost a fair amount of money trading stocks and I’ve lost a lot of money trading options.  To be a successful trader a person needs to be extremely disciplined and emotionally self-aware.  These two traits take a level of maturity we don’t all have.  In either case, consider this phase a temporary investment phase designed only to keep your money working until you find a better investment.

See Mutual Fund Investing for Financial Freedom

The Financial Bridge Superstructure Is About Cash Flow

Finally, we are able to start constructing the bridge superstructure.  This is the last step before crossing the bridge to financial freedom. This is the visibly imposing part of the bridge.  It is strong enough to span across the gap, yet somewhat elegant.  After all, to you and to others who have a similar vision, this is a beautiful bridge.  This bridge is able to sway with the strong winds, without self-destructing, because it is made of multiple elements and materials working together. 

In this analogy we are going to construct a bridge from one end to the other, utilizing bridge segments. This is called a segmental bridge.  Each bridge segment is a cash flowing, passive investment.  In short, these are the types of investments that will produce cash flow without you having to fully dedicate yourself to them.  Always remember, these are not businesses that require your active involvement.  This is because to truly multiply wealth you need several sources of income.  And in the case of a business that requires active involvement, you will be limiting your sources of income because you have a limited amount of time.

Many personal finance influencers preach about FIRE (Financial Freedom Early Retirement). I believe the FIRE movement is a bit misleading when too much emphasis is placed on the retire early part. Again, I’ve studied this subject and I’ve written about this in depth. If you have time, I recommend you read Financial Freedom Is About Cash Flow, Not Early Retirement

Form a Business Entity (LLC, Corporation, etc)

In this stage of construction, it is important to form a business entity (i.e. a Limited Liability Company).  First, business entities provide the investor with protection from all sorts of parties that don’t have your best interest in mind.  Second, business entities provide significant tax advantages over how an employee is taxed.  This is because from a tax perspective, the money flow for a business entity is different from the money flow for earned wages. 

Let’s first look at the money flow for an employee and then let’s look at the money flow for a business entity.  An employee earns wages, then is taxed, and finally is able to spend what is left over.  On the other hand, the business entity first earns revenue, then spends money associated with the business, which often provides an added benefit to the owner of the entity, and then pays taxes on what is left over.  Obviously the lines can get blurry at times and the tax laws can be complicated, so it also pays off to utilize the services of tax and legal professionals when it comes to these things.  The point is that the tax differences over multiple businesses entities, and over time, can be a significant factor in the construction of the bridge to financial freedom.

Multiple Sources of Cash Flow

Now that we’ve touched on the importance of forming a business entity, let’s continue with the construction of the bridge segments.  In this stage we need to invest into cash flowing investments and we need to pursue multiple investments. For several reasons, including tax advantages, financing, and return on investment, my preference in this stage is to invest in real estate. However, it may be difficult to leap into owning a real estate income property right away, so you may need to explore other options.  There are many possibilities an investor can pursue, but in any case it is of absolute importance to study the asset class, to understand valuation, and the return on investment.  We’ll cover all of these things at a later time. 

Whatever cash flowing investment you end up pursuing, you’ll be in a much better position if you can utilize financing to purchase those investments. The less money out of pocket on each investment the better, as long as each investment is cash flowing. However, always be mindful of not having too much leverage. If you have too much leverage and an investment goes bad you could lose everything.

Once you have erected the first bridge segment, the second one will be easier, faster, and likely bigger.  Soon you will have enough bridge segments in place and success will be eminent.  The more sources of income you have the closer you’ll be to financial independence. 

One of my multiple sources of cash flow is a mobile home park I own. If you’d like to read more about this, check out How I Bought a Mobile Home Park with $36,000.

The Value of a Mentor

Throughout the construction of your bridge it will be helpful to have a mentor (or mentors) that can point out any deficiencies and can help you be more efficient.  It is up to you to seek mentors and to establish a relationship with them.  Likewise, you will notice other people wanting to build their bridge.  Give them a hand by being a mentor in the areas you have developed an expertise.  When you do this you will find out that you gain more from these relationships than what you give.

The Financial Bridge Timeline

Finally, any contractor will tell you that to be successful on a given project they need to develop a construction schedule, which is fundamental to plan the work and execute the project to completion.  When constructing your bridge to financial freedom, use the same principle to clearly outline major milestones and target specific dates.  This exercise will force you to dive deeper into the planning, it will help you establish clear goals, and it will provide ongoing motivation as you check off your accomplishments.  I strongly suggest you start this exercise right now.  Simply write down some key goals and dates.  Don’t get caught up in making it perfect. Once you get started you’ll get a sense of how much detail to include.  A more comprehensive plan can be drafted later.  For now, the important thing is to take a small step in the direction of your dream.

The Bottom Line

The bottom line is that the bridge to financial freedom needs to have a strong foundation, a solid substructrue, and a superstructure composed of multiple segments. Constructing the bridge foundation involves paying off of bad debt, maintaining sufficient insurance coverage to protect you from any unforeseen emergencies, and saving money, preferably in inflation proof assets (i.e. gold and silver).  The next step is to construct the substructure.  This includes funding for retirement, potentially saving for college, and investing in growth assets (i.e. mutual funds).  The last phase of construction is the bridge superstructure.  This is includes investing in cash flowing assets (i.e income real estate).  The more sources of cash flow you have, the closer you’ll be to crossing the bridge to financial freedom.

Moving Forward

Next we’ll expand more on valuation and will discuss a few examples. If you are ready to start working on your bridge superstructure or want to learn more about this, I’d like to recommend two particular articles. The first one, in particular, about creative thinking is something every investor should be practicing years before pulling the trigger on an investment.

How to improve creative thinking in business to get win-win deals

How to evaluate stocks, websites, real estate and more

As always, please drop me a note and let me know what other areas of business and finance you’d like to explore. Then, I’ll write more about your suggested topics as we pursue knowledge, financial success, and financial independence together. In addition, you can also follow me on Twitter at @Cash_Keen