Today we will talk a little about “Financial independence” particularly as it relates to our previous series on “Passive Income”.
“Financial independence” is a phrase often bandied about without any sort of consistent meaning. But what exactly does it mean?
- Does “financial independence” mean complete freedom from debt?
- Does it mean the ability to switch jobs without creating a financial panic in your household?
- Does it mean having enough money to survive without further income?
- Does it mean having enough money to thrive and chase whatever endeavors you like without further income?
Here’s the thing… they’re all definitions of financial independence. But why so many different definitions for the same phrase? It’s simple… while that “financial independence” is a worthwhile, lofty place to aim your financial efforts: it means different things to different people
True financial independence means that you have enough money to survive without further income but that does not preclude you from working for additional income. It merely means that if you were to quit working today, your lifestyle would not change in any significant way due to a lack of a working income.
Most retirees have reached this level of financial independence, as they often do not have to work to maintain a basic lifestyle, but often choose to work out of a desire to do something interesting and productive with their time, to give back to community or a desire to live a lifestyle beyond their idea of a basic lifestyle – travel, services, a nice home, and so forth.
Others might have different viewpoints. Financial independence might occur for them once they’re outside of the burden of excessive debt. Others might feel independence when they can freely switch jobs, or when they have the ability to start their own business out of pocket.
The important question isn’t what financial independence means to anyone. What matters is what financial independence means to you?
On one level, this discussion really is about goal-setting. Many people look at financial independence as a state beyond what they currently have – and it’s something that has attributes that they want. Do you want the ability to easily switch jobs without panic? Do you want the ability to survive without having to work? Those are goals that all fall under the umbrella of financial independence.
The key part is to turn that idea of financial independence that you have in your head and in your heart into a long term goal, one that you’re planning on reaching in the future. What can you do today to move towards that definition of financial independence?
Why write about this? Whenever you read an article or hear someone mention “financial independence,” consider for a moment what that person is actually writing or talking about. Does it match what you define as financial independence? Or are they talking about something else?
Next week…steps to achieving financial independence.
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“A wealthy person is simply someone who has learned how to make money when they’re not working.” – Robert Kiyosaki