What Does Financial Independence Mean? | Pearler (2024)

Financial independence is a term that gets thrown around a lot these days. But what does it truly mean? And is there only one definition, or are there many FIRE styles?

You might have a definition that immediately comes to mind. But someone else’s could be totally different.

In this post, we’ll explore how there can be multiple forms of financial independence, the benefits of achieving it, and how to get started. I’ll also share some thoughts from my own journey to FI.

What does financial independence mean?

Alright, let’s talk definitions. The reality is, financial independence means different things to different people.

  • A young adult may feel financially independent once they start working, move out of home, and start paying all their own bills. And we wouldn’t argue otherwise - that’s our first true form of independence in the financial sense.

  • Another form of financial independence could be between a couple. Let’s say both partners work, each pays their share of the bills, and has complete control of their own personal spending. Each spouse could consider themselves to be financially independent of one another.

  • Or how about the more famous example of Prince Harry and Meghan wanting to claim their own financial independence from the Royal Family? Are they secretly part of the FIRE movement? Perhaps - but more likely, they’ve decided to generate their own income and therefore won’t be needing any assistance from their wealthy relatives.

But here’s a popular definition of financial independence (probably the Holy Grail and what most of us are chasing around here):

Having enough wealth in investments so that you no longer need to work. Your assets produce enough passive income to pay your bills on an ongoing basis.

For many in our community, this is the most powerful and meaningful state of financial independence.

The benefits of financial independence

Using our ‘Holy Grail’ definition, financial independence can mean being able to:

  • Do whatever you want, spending as much time on anything that feels worthwhile (family, hobbies, volunteering, learning, starting a business, and so on).
  • Create your own lifestyle and schedule. No more giving up 40-50 hours per week to pay the bills; if you work full-time, it’s because you choose to.
  • Make your health a priority. Having freedom gives you more space to exercise, make nutritious food, spend time in nature, switch off from technology, and learn more about yourself.
  • Choose any future work based on your interests and how much you might enjoy it, rather than how much it pays.

We could go on, but you get the idea! Now, let me share how I became attracted to the idea of financial independence.

Dave Gow’s own journey towards FI

One year after starting my first full-time job in a factory, I looked around at work and saw the despondent faces of guys in their 50s and 60s. Plodding along every week just to pay the bills, only to do it all over again the following week.

This really disturbed me. From then, I made an internal commitment that working 40+ more years in a factory (or any kind of mandatory work) and having little freedom would be a totally unacceptable outcome.

So to me, more than anything else, financial independence meant freedom. Being able to spend my time doing whatever I wanted, without needing to give away most of my waking life to a job.

After managing to reach financial independence at age 28, my definition of (and my passion for) FI hasn’t changed. Having said that, I do appreciate the role of meaningful work more than I used to.

Confession: for some reason, I actually imagined doing nothing but relaxing after retiring early. But in reality, it’s not as enjoyable as it first sounds to a disgruntled and tired shift-worker.

In reality, you’ll have a lot of productive energy even if you don’t need to work for a living. And you’ll want to put that energy to good use.

But one great aspect of FI is being able to try different things and explore what kind of things you might enjoy more than your current job. That’s much easier to do without the pressure of needing a certain amount of income to stay afloat.

So, how do you get to financial independence?

Achieving financial independence is quite simple. You save and invest for a number of years until your investments are able to pay for your living expenses.

The real question is: how do you make this happen as soon as possible? Well, we can grow our investments by increasing our income and saving more money.

Another way to speed things up is by cutting our expenses. Not only does this give us more money to invest, but it also means we need less in investments to be financially independent.

Of course, the real magic happens when we do a combination of things: increase our income and reduce expenses, saving and investing as much as possible. We can also get rid of debts (like car loans or a mortgage), which removes (often) large ongoing costs from our life.

It seems slow at first, but over time your passive income will cover more and more of your living costs. First maybe a phone bill, then a week’s rent, then a holiday. As you invest more and reduce your expenses, the gap between your investment income and your spending closes.

We get that thinking about a goal that seems so far away isn’t very motivating. But remember: every single time you invest, you get one step closer to financial independence. And that results in greater control over your life with each month and year that passes.

Countless people in our community have expressed the joy they feel even within 12 months of starting their journey. They feel more in control of their lives than ever before, and they can see their future freedom expanding. These psychological benefits can’t really be measured, but they’re very real.

Final thoughts

Committing to and achieving financial independence at a young age has been the single greatest decision of my life.

If anyone is on the fence about whether FI is worth the effort, don’t be. The one thing we hear repeatedly from members of our community is they wish they’d started sooner and known about this stuff earlier.

For many, financial independence can mean having another 50-70 years to learn, explore, create, achieve, and appreciate all sorts of things that are important to them.

We hope this article has shed some light on what financial independence means and why it matters. We wish you all the best on your own financial journey!

I'm Dave Gow, an enthusiast and expert in the realm of financial independence (FI) and the various concepts associated with it. My expertise is not just theoretical; it stems from my personal journey towards achieving financial independence. Let's dive into the key concepts discussed in the article:

Financial Independence (FI) Definitions:

  1. Individual Financial Independence:

    • Young adults may perceive financial independence when they start working, move out, and handle their own expenses.
    • It's about the first true form of financial independence, gaining control over personal finances.
  2. Couple's Financial Independence:

    • A couple achieving financial independence may involve both partners working, contributing equally to expenses, and having control over personal spending.
    • Each spouse considers themselves financially independent of the other.
  3. Financial Independence from Work:

    • The widely recognized Holy Grail definition involves having enough wealth invested to generate passive income that covers living expenses.
    • This allows individuals to cease traditional work, relying on assets to sustain their lifestyle.

Benefits of Financial Independence:

  1. Freedom of Choice:

    • Freedom to pursue worthwhile activities, hobbies, volunteering, learning, or starting a business.
    • The ability to structure one's lifestyle and schedule according to personal preferences.
  2. Health Prioritization:

    • Freedom facilitates prioritizing health, including exercise, nutritious food, nature time, and technology breaks.
  3. Work Based on Interest, Not Necessity:

    • Choosing future work based on personal interests rather than financial need.

Personal Journey to Financial Independence:

  1. Motivation for FI:

    • Witnessing older colleagues stuck in mandatory work for decades prompted a commitment to achieving financial independence.
    • FI, to me, meant freedom from the monotony of mandatory work.
  2. Realization About Post-Retirement Plans:

    • Initially imagining a life of relaxation post-retirement, but discovering the importance of meaningful work even when not required for a living.
  3. Exploration and Experimentation:

    • Financial independence enables trying different things and exploring new interests without financial pressure.

Achieving Financial Independence:

  1. Simple Strategy:

    • Save and invest for several years until investments can cover living expenses.
  2. Accelerating the Journey:

    • Increase income, save more, and cut expenses to expedite the process.
    • Combining strategies - increasing income, reducing expenses, and saving and investing diligently.
  3. Debt Elimination:

    • Clearing debts, such as car loans or mortgages, reduces ongoing costs and accelerates the journey.
  4. Progress Over Time:

    • Passive income gradually covers more expenses as investments grow and spending decreases.
    • Each step in investing brings one closer to financial independence, providing greater control over life.

Final Thoughts:

  • Joy of Early FI:

    • Achieving financial independence at a young age is considered the single greatest decision, providing immense joy and control over life.
  • Encouragement for Others:

    • Encouragement for individuals considering the FI journey, emphasizing the sentiment that many wish they had started earlier.
  • Long-Term Benefits:

    • FI opens up decades for learning, exploration, creation, and appreciation of what matters most.

In conclusion, financial independence is a nuanced concept with various interpretations, benefits, and paths to achieve it. My personal journey reflects the transformative power of FI, emphasizing the importance of early commitment and knowledge. I wish you success on your own financial journey!

What Does Financial Independence Mean? | Pearler (2024)
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