The Secret to Complete Freedom: Financial Independence

What if you never needed to work again, and you could still live the life of your dreams? This is possible through a concept called Financial Independence (also known as FI). When you’re financially independent, you don’t rely on income from a job to pay for your basic needs or wants. You aren’t living paycheck to paycheck. You don’t need to spend any time or mental energy worrying about the bills. You can afford to do the things you’ve always wanted to do “when you retire,” now.

In this post, we’ll cover:

What Financial Independence (FI) is
Why FI matters + what it means for your life
How to achieve FI, and tips for getting there faster
Obstacles to consider in pursuit of FI
Resources and further reading on FI

The definition of Financial Independence

Financial independence (also known as FI) is, simply, the ability to live off of the income that your assets produce. That definition usually generates more questions than answers.

First of all – how do your assets produce income? They’re just assets! This questions really boils down to – how do you achieve financial independence?

Secondly – so?? Who cares? Why is financial independence important anyway? Why are people willing to live so far below their means to achieve this thing called “FI”?

These are the two main questions we’ll answer in this post. But first, let’s set the stage by addressing some common questions and hesitations people have when they think about FI.

Is Financial Independence Realistic?

Does this sound crazy and/or unrealistic? If so, consider this: almost all people reach financial independence at some point in their lives. You heard me right! And, furthermore, this is acutally a highly popularized concept! It’s called retirement.

First, let me dispell the common misconception that not needing to work = not working, or not wanting to work. Sure, some people who obtain the financial resources to support themselves without working will want to completely stop working, but that’s not my experience with the FI community. Most people actually tend to make more money once they’re FI, for a few reasons. First, they can take risks because they have a financial safety net to fall back on. And big risk can mean big reward. Second, they are more likely to pursue their passions, and the energy and love that someone brings to work they truly enjoy naturally brings higher compensation.

This is meant to be an introductory post on the concept of financial independence. In this post we’ll cover the reasons FI matters, how to achieve FI, common obstacles to FI and other reading and resources that can help you on your journey towards FI.

Financial Independence… from what?

Ever wished you were born into wealth so you didn’t have to worry so much about what things cost? Or so you weren’t stressed out by your student loans because you paid for college in cash? Or so you could afford to travel the world like you’ve always wanted? Or so you could just move out of your parent’s house already?!

I’d argue that what you were wishing for when you wished you were from a wealthy family is actually financial independence. Financial independence gives you the freedom to live your life how you want, regardless of the cost. It means not being stuck, it means not being trapped by a job, and it means not worrying so much about financial matters. The most important freedom you gain through financial independence is freedom from dependence on others.

Freedom from dependence on others

Be it your parents, your partner, or your employer, you’ve been financially dependent on someone else at some point in your life. It feels good to be self-sufficient, and no longer rely on others to know you are financially secure. For a lot of people, they become financially independent from their parents after high school or college. Then, they might become financially dependent on a partner’s income, to provide for a portion of their living expenses, needs, and wants. And often, people are dependent on their jobs for their entire lives (at least until retirement) to keep them financially secure.

Financial dependence on sources other than yourself can often cause a lot of worry. What if my parents cut me off or kick me out? What if my partner breaks up with me? What if I get laid off or fired?

Financial dependence also limits your options. One main benefit of financial independence is the flexibility it gives you to be open to opportunity. If a dream job comes your way that pays less than you’re currently making, you can still accept it. If a great investment opportunity shows up, you can jump in.

On the flip side, being financially independent keeps you from being stuck. You won’t be beholden to keep the terrible job that you hate where your boss yells at you on a daily basis. You aren’t stuck in an abusive relationship because you can’t afford to move out or live on your own. You don’t need to go to your parents for money or move back in with them because you can provide for yourself in a situation where you may have lost a job or partner.

Why is Financial Independence Important?

For anyone who is still thinking this sounds utterly ridiculous, think of it this way. Most people eventually reach FI in their later years. This is traditionally referred to as “retirement.” But why wait until you’re old, grey, and not as spry as you used to be to live the life of your dreams? If you knew the formula, couldn’t you hack the system to reach this stage earlier? And this is why I will start with discussing WHY FI is important.

Why wait until you’re old, grey, and not as spry as you used to be to live the life of your dreams?

Financial independence is financial freedom. Imagine what your life would be like if you didn’t need to go to work for 40 hours a week at a job that you hate (or is even just OK). Imagine what you would do with all of that free time. Or how you would feel if you didn’t have to worry if you could afford something you wanted to buy. Or how relieving it would be to not worry about whether you have enough money to make it through retirement without resorting to consuming Meow Mix for dinner.

You would have the freedom to live a life you love – your ideal life.

You wouldn’t have to waste time at a 9-5 that doesn’t let you express your creativity, and that squanders your true talents.

You could give your gifts to the world.

You could practice your passions.

The world would be a better place if we all had the freedom to five our unique gifts and do work that was driven by passion.

How to Achieve Financial Independence

Financial independence is the ability to live off of the income that your assets produce.

You are considered financially independent when your assets generate enough income or cash flow to cover your expenses. This process of your assets generating income is called “passive income.” The phrase passive income comes from the idea that you don’t actually have to work, or be active, to generate this income.

As such, this concept is the exact opposite of the typical, trade-time-for-money 9 to 5 corporate job that gives you a paycheck for showing up to work for 40+ hours a week.

Some examples of passive income are:

Dividends from stocks
Rental Income from real estate
Income from work products you’ve created in the past
Royalties from songs or books
Residual sales of courses or online products

Now that you know what you need to do to become financially independent, here’s the important part: HOW to become financially independent.

The Financial Independence Formula

This is really a 3 part formula.

1. Increase your savings and investments (have a high savings rate)
2. Reduce your expenses
3. Develop diversified sources of passive income

How to Become Financially Independent Faster

How can you get there faster?

Focus on becoming more intense with the three factors:

Increase your savings rate – you can do this two ways – by earning more, and by spending less. Combine the two and you will have astronomical success!
Save more where it matters – stop cutting out lattes, start managing the largest 3 expenses in your life.
Start a business or side hustle – craft an asset that will eventually provide passive income, and will in the meantime help with #1- making more money

Learn more in Episode 005 of Find Your Freedom.

What’s next? Life after FI

This is the big question, isn’t it? Once you reach FI, what is there left to do?! Plenty! Live your life, and enjoy it. But don’t just live the same old life you were living, or a life that is shaped by other people’s expectations of what your life should look like. Live a well-designed life that you love.

This is why Financial Independence and Lifestyle Design go hand-in-hand. Read about Lifestyle Design here.

And with your newfound freedom, give back. Volunteer your time, donate your money, or practice your passion and share your talents with the world.

The world would be a better place if more people could afford to give what they are best at to the world, rather than being too exhausted from an unfulfilling job to practice that gift at all.

The Bottom Line

Financial independence is achievable – for everyone. Most people get there when they’re 65, by default, when they’re forced by health or age to retire. The question is, are you willing to work hard to achieve financial independence earlier in life?