What is Financial Independence?

Financial Independence, or Financial Freedom, is highly sought for. But there are a few questions about being financially independent including a clear definition and the steps to accomplish it.

In today’s post, we will look at two quick definitions, explain what financial independence is not, and look at a few quick pillars those living this lifestyle have followed.

If you are interested in listening to an audio version where Kevin and I go into more detail on this topic, check out our Podcast episode #19: Financial Independence – What Goes into it?

Defining Financial Independence

When defining financially independence, there are two options.

Option 1:

You are financially independent when you are responsible for your own expenses. You no longer rely on a parent, guardian, or another family member to provide money for you or cover your bills.

Option 2:

Financial independence can also be the point where you have saved enough income to allow you to not need a typical job to support you and can pursue your own goals and endeavors because you are financially secure.  

For our purposes, option 2 is where we are landing. The achieving of financial independence does not mean that you do not work anymore. However, it may mean that you are able to work a job that brings you more purpose. And as a result, put your time and effort into your passion projects, rather than working a job you dislike because you need the money.

What Financial Independence is Not

There are a few misconceptions about achieving a financially independent lifestyle.

1. Financial Independence is only for the wealthy. Many middleclass workers have achieved financial independence not just at the typical age of retirement, but much earlier.
2. Financial Independence means I have stopped working. We mentioned this above, but it’s important for you to remember that this does not mean you are required to stop working.
3. Being financially independent means I do not have an income. This could not be more wrong. Most people become financially independent because of their passive streams of income that are continual. Some of these could include rental properties and selling courses online.
4. Achieving financial independence means sacrificing all of my wants in order to save all my money. While there certainly are those who barely spend any of their income, you can become financially independent while still going on vacation and eating out.

How to Achieve Financial Independence

There are 8 Pillars that we believe those who are pursuing a life financially independent life are working on. These have come from one of our favorite resources, ChooseFI.

1. Long-term investing in Low-cost index funds (Podcast Episode #20)
2. Affordable housing (Podcast Episode #21)
3. Car ownership – don’t buy new
4. Food budget – strict guidelines on spending
5. Tax optimization
6. Credit card rewards 
7. Cutting the cord and low phone bills
8. 4% Withdrawal rule