Since we are a life improvement blog currently focusing on financial independence, retire early (FIRE), we thought it might be a good idea to make sure we are all on the same page of what we mean by financial independence.
In short, financial independence is when you have enough wealth to live on without working.
This means you have enough assets to cover your expenses for the rest of your life. These assets could be in the form of cash you saved, investments you receive dividends from, rental income, inheritance, etc.
The actual dollar amount you need to be considered financially independent will depend on you and your individual needs and desires. It will depend on the expenses you have (housing, transportation, groceries, insurance, fun, etc.) and how much of a buffer you feel you need on top of those expenses.
Generally, when people say they are working towards financial independence, they mean they are reducing their expenses, and/or saving their earnings, and/or creating passive income streams (such as rental properties) to allow them to have enough money to live off of comfortably for the rest of their life without continuing to work.
To be clear, financial independence does not mean you have to stop working. The idea is just that it gives you the choice. It allows you the option to do things that add benefit to your life as you see fit. Many people do continue working after they have reached financial independence.
Things you can do with financial independence:
- Define your own schedule
- Feel in control of your financial health
- Spend more time with loved ones
- Spend more time on your hobbies (whenever you feel is fit)
- Travel more than when restricted by time off policies
- Help friends and family more often
- Volunteer
- Be location independent
Things you don’t have to do when financially independent:
- Commute (unless you want to)
- Live somewhere for a job
- Miss important life events with friends and family because you don’t have time off
- Worry about paying the bills
- Stress over mindless office politics
- Be stuck inside on a computer everyday (unless you want to)
What is Financial Independence for the FIndings?
For us, financial independence means having control of our time. We will do this by having enough money to support our basic needs without relying on traditional work. Instead, we will be able to participate in whatever service or income generating activities we want, only if we want.
Practically speaking, for us financial independence means having 25x our annual expenses saved in retirement and taxable accounts. (And potentially some additional income from rental properties, although we are still learning about this option- please share any thoughts you may have on this in the comments with us!).
It means quitting our full time jobs to be location independent, travel more often, work on projects and jobs we find meaningful, and invest more time with our loved ones.
It is about having the freedom of choice in how we spend our precious time.
So there are some “textbook,” practical, and more in practice definitions of financial independence for you!
Are you on the path to financial independence too? Or thinking about it? What does it mean for you? Have you heard of any other definitions or conceptual ideas of what financial independence is? If so, please share with us in the comments!
