In the midst of our rush to earn money, our scramble to save for retirement, our focus on frugality, it’s easy to lose sight of why we’re doing this. What is the goal? What is it we’re trying to do? For many, the answer is to achieve Financial Independence.
What is Financial Independence? Why is it a worthy goal? To some, it merely means not relying on a parent or other loved one to help pay the bills. For others, it means freedom from all debt. For yet others, it means freedom from having to work for income.
Freedom from financial reliance on family/friends is a freedom that many young people earn in their late teens to mid twenties, as they get through college, earn a degree, find a job, and separate themselves from their parents. For many people, this is financial independence. They strive to be their own person, independent of the people around them, capable of standing on their own two feet.
Freedom from financial reliance on creditors occurs when you are completely free of debt. No mortgage, no student loans, no car payments, no anything. Aside from taxes, you’re free to do what you want with all of your income. This is often used as the definition of financial independence by those who advocate a strong anti-debt position. Setting it as your goal to achieve this type of independence takes a strong commitment to the “spend less than you earn” philosophy. This requires enough income to cover your basic expenses and more, a good grasp on how to control your spending, and a debt repayment plan that you’re committed to executing.
Many financially stable people view freedom from financial reliance on employment as true financial independence: an end to the financial reliance on employment. It doesn’t mean you have to stop working, it just means that income from your work is no longer a requirement. Many of the same principles for debt reduction apply here to achieve this goal. Spend less than you earn and invest the rest of it for the long term. Work on maximizing your income and minimizing your spending and sock away that difference.
Financial independence is a great goal, but as with any goal, you have to define exactly what it means for you and then define a plan to meet that exact goal.
Tags: debt reduction, financial independence, financial planning, goals, income, spending habits
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