July 17, 2023
If you want to become financially independent, you’ve got to know what it means to be financially independent. It’s not that difficult to get your arms around. A straightforward operational definition does the trick.
“You will know if you are financially independent if you have eliminated your debt, have a financial reserve that can sustain you for an extended period, and have reduced stress levels when managing your finances,” says Annette Harris, owner of Harris Financial Coaching in Jacksonville, Florida. “Financial independence is achieved if you are not dependent upon your employer, income from your business, or financial assistance from an outside source.”
Why should you become financially independent?
Definitions alone, while useful, won’t necessarily push you toward your goal. It helps if you know why you should become financially independent.
Here, you want to paint a specific picture of what your life looks like once you’ve achieved financial freedom. This visualization will focus your attention on the benefit of achieving this objective. It won’t be a theory. It will be something practical enough for you to imagine how it will help you right now.
“Financial independence means having enough financial stability and resources to support one’s desired lifestyle and meet financial goals without depending on others for financial assistance,” says Adam Garcia, CEO of The Stock Dork in Orlando, Florida. “It includes being able to cover essential expenses like housing, food, healthcare, and education, as well as discretionary spending and future financial planning. People achieve financial independence by generating income through investments, savings, or entrepreneurship, which helps them maintain their desired standard of living and achieve long-term financial security. It also requires responsible management and control of one’s finances, making informed decisions about spending, saving, and investing.”The biggest advantage offered by financial independence is that you can control the things that matter most in your life. You’re beholden to no one. You are the master of your own domain.
“Being ‘financially independent’ means having enough wealth or income-generating assets to cover your living expenses without dependence on employment or financial assistance,” says Tyler Seeger, managing director at Retirement Being in Laguna Niguel, California. “It’s about being free to choose how to live your life and spend your time without worrying about your next paycheck.”
Why is it hard to become financially independent?
For all its allure, why are so few people financially independent? The fact is, it’s not easy to achieve financial independence. What makes it so hard?
It’s your daily routine. The future ideal of financial independence sounds good, but there is a certain comfort in the status quo, even if it’s not in your best interests long term.
“If you’re relying on outside income, you’re not truly financially independent,” says James Allen, the founder of Billpin in Los Angeles. “Why? Because you’re still tethered to someone or something else for your livelihood. True financial independence means your income is self-sustaining, generated by your own investments or businesses. It’s about being the master of your own financial destiny, not a passenger on someone else’s ship.”
Financial independence also requires you to work at some things and sacrifice others. Think of it as a fight between accumulating assets and eliminating liabilities. That’s never easy. Especially in a world that rewards immediate gratification.
“Being financially independent means having income from investments,” says Melissa Terry, a CFA +0.4% at VEM Tooling in Kenner, Louisiana. “These investments should cover expenses without the need for extra work income. Also, it means being free from debt burdens or having manageable debt that does not suppress one’s financial resources.”
What are the steps you can take to become financially independent?
The good news is there are definitive steps you can take to achieve financial independence. It begins with going back to the beginning of this article. What does financial independence mean to you?
Before you answer, here’s a hint: don’t think about it like everyone else does.
“Most people think of financial independence as having more than enough money so as not to have to go to work every morning,” says V. Henry Astarjian, managing director at Waterstone Advisors, LLC in Walpole, Massachusetts. “That is true to some extent. But as people live longer, financial independence can also mean having a satisfying career where you can work productively well into your later years. We are now seeing more people in their eighties and nineties who are sharp as a fiddle and who are still working, supporting themselves, and contributing meaningfully to others. If you have either of these, you are financially independent.”
Being imaginative helps you frame financial independence in a way that’s most meaningful to you. Still, getting there comes down to the usual blocking and tackling.
“One effective strategy to increase the chances of gaining financial independence is ‘regular and disciplined savings combined with prudent investments,’” says Brandon Juodikis of BRJ Wealth Management in Chicago. “Consistently setting aside a portion of your income for savings and investments helps build wealth over time. By investing wisely in diversified assets, you can benefit from compounding growth, which accelerates your wealth accumulation. This strategy allows your money to work for you, leading to potential financial independence in the future.”
Finally, don’t overshoot your goal. Being financially independent doesn’t mean you have to appear in the newest incarnation of Lifestyles of the Rich and Famous. If you stop and consider it, targeting a more modest lifestyle definitely lowers the bar when it comes to achieving financial independence.
Mark Chen, founder/CEO at Billsmart in New York City, says, “You can tell if you are financially independent if you have enough assets or steady income going in to not worry about running out of money if you live a good but not extravagant life.”
A simple life doesn’t have to limit you to going back and forth on the rocking chair. You’re still allowed to have fun.
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