What Is Financial Independence? (2024)

From paying off your student loan to being able to retire in your 40s, financial independence means different things to different people. But, whatever the definition, rising living costs is making it harder to achieve.

Forbes Advisor commissioned a survey asking 2,000 people from across the UK what it means to be truly financially independent. The most common response was ‘receiving no financial help from parents or guardians’ which almost half (44%) of respondents believed to be an accurate depiction of ‘standing on your own two feet’.

Others, however, associate financial independence with key life milestones. ‘Buying a home with a mortgage’ (40%) and ‘paying household bills’ (37%) were the second and third most popular definitions from our survey.

RankDescription% of people who define this as being financially independent
1Someone that doesn’t receive any financial help from their parent(s)/guardian(s)44%
2Someone who has bought their own home with a mortgage40%
3Someone that pays household bills37%
4Someone who has a full-time job36%
5Someone who is renting their own home on their own30%

How many of us consider ourselves to be financially independent?

Currently seven-in-10 (71%) Brits over the age of 18 consider themselves to be financially independent. But while the figure rises to 77% among those aged over 55, this still indicates that almost a quarter (23%) of this age range rely on external financial support to get by.

Just over half (59%) of those aged 18-34 classify themselves as being financially independent.

When asked at what age financial independence is achievable by, the average response was 29. However, a quarter (25%) don’t think it is possible until over the age of 30.

What age do we reach milestones for financial independence?

When it comes to life milestones that unlock financial independence, our data shows they are generally thought to be reached between the ages of 20 and 30.

Examples include paying rent at your parents’ home and having a full time job (age 22), renting your own home and getting a credit card (age 24), and paying off your student loan (aged 29).

Although being financially independent enough to support a family is not percieved to happen until age 31, according to our survey respondents.

What is FIRE?

However, for the growing number of subscribers to the FIRE movement, the true definition of financial independence means no longer having to work in paid employment – something they aspire to achieve at the absolute earliest age and opportunity.

FIRE is an acronym which stands for Financial Independence, Retire Early. And its followers hope to achieve that goal by a combination of working as hard as possible, while saving and investing between 50% and 75% of the income they earn.

With some shrewd planning and calculations, smart investments, and abundance of sacrifice and dogged determination, the idea is to be able to retire sometime in their 30s or 40s. Although there are various iterations of FIRE, the principle remains the same – pull out all the stops now for financial freedom sooner.

Laura Howard, Forbes Advisor’s deputy editor, explained: “The FIRE model is designed to achieve greater flexibility in life choices, and potential early retirement. The goal is to accumulate enough assets and passive income streams (that provide you cash or assets without the input of too much time or financial investment – for example shares, buy-to-let properties etc) to cover living expenses without relying on a traditional job.

“Some key methods in the FIRE approach include living below your means by cutting unnecessary costs and adopting a frugal lifestyle, pursuing additional income streams, promotions or ‘side hustles’, allocating a large portion of savings to investments – such as low-cost index funds, property, or dividend-paying stocks – and minimising your tax liability by using tax-advantageous accounts as ISAs (individual savings accounts).”

What Is Financial Independence? (1)

Milestones for financial independence shifting

However, for many of us FIRE is way beyond the realms of feasibility while ongoing high living costs is pushing the dream of financial independence even further into the future.

For example, survey respondents aged over 55 started paying rent at their parents’ homes at an average age of 19. This compares to the younger generations, specifically those between the age of 18 and 34, who either started – or expect to start – paying rent at their childhood home at age 25.

This illustrates how much harder it can be for today’s younger generations to start contributing to family household finances. Rising living costs mean it simply is not feasible until they’ve had time to increase their earning potential, especially if they are also trying to save for a deposit on a home.

The age disparity at which different generations stopped receiving financial help from their parents demonstrates this further. Respondents aged over 55 were aged 22 on average when they stopped receiving assistance from family. This compares to those aged 18-34 who pull the plug on family financial support three years later at 25.

Key milestoneAverage age each milestone was or is expected to be achieved by generation
Paying rent at parents’ house252219
Paying rent in their own home262426
Buying their own home with a mortgage283028
Paying their own bills e.g. phone and entertainment subscriptions242425
Getting their own credit card252425
No longer receiving financial help from a parent or guardian252322
Having a full-time job252220
Paying household bills252425
Supporting a child282929
Supporting other family members283034
Paying off a student loan312933

What does the future hold?

With the economic environment remaining fragile and uncertain, we asked respondents what the future might look like for the next generation.

More than half (58%) of respondents think the average age for reaching financial independence will be much older than previous generations, with one-in-20 (5%) saying they’ll never even reach it.

With home ownership being a popular measure of financial autonomy, many also weighed in on the changes wrought by the housing crisis in relation to the impact on younger generations. A fifth (20%) believe home ownership is something only a minority can achieve and that new measures will need to be used to determine what financial independence really means.

Meanwhile, 15% think home ownership won’t be possible without help from family members so wouldn’t use it as a valid measure of independence.

Whatever step you’re taking towards financial independence, making smart decisions early can help to smooth the journey. The finance experts at Forbes Advisor have put together their top tips for those working towards financial independence.

  • Save money efficiently – When saving for your first home or another major life milestone, think beyond traditional savings accounts. A Lifetime ISA (LISA) for example can be opened by anyone aged between 18 and 39. You can save up to £4,000 a year in these accounts to put towards your first home or retirement, with the government topping up with a cash bonus of up to £1,000 a year.
  • Protect and nurture your credit score – If you have not had any form of credit in the past, your credit score will not be as good as it can be. This, in turn, means you won’t be offered the best deal and rates. One way of building up your credit score is by using a credit card regularly which you pay off in time, and in full, every month. Interest is notoriously high on credit cards so only take out a card if you are sure you are able to do this.
  • Show your credit card who’s boss – If you are applying for your first credit card make sure it works for you from the outset. Setting up a direct debit to pay off your balance every month will avoid paying interest, while using your card for large purchases (worth more than £100 and up to £30,000) will offer protection under Section 75 of the Consumer Credit Act.

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I'm a financial expert with a deep understanding of various aspects of personal finance, investment strategies, and financial independence. My experience in the field is evident through years of research, analysis, and practical application of financial principles.

Now, let's delve into the concepts discussed in the article:

  1. Financial Independence Definitions:

    • Receiving no financial help from parents or guardians (44%): A common perception of financial independence, where individuals stand on their own feet without relying on family support.
    • Buying a home with a mortgage (40%): Owning a property through a mortgage is seen as a significant milestone towards financial independence.
    • Paying household bills (37%): Managing and covering household expenses independently is another crucial aspect of financial autonomy.
    • Having a full-time job (36%): Gainful employment is considered a key element in achieving financial independence.
    • Renting their own home on their own (30%): Renting a place independently is also perceived as a step toward financial self-sufficiency.
  2. Self-perception of Financial Independence:

    • Overall Financial Independence (71%): 71% of Brits over 18 consider themselves financially independent, but this figure drops to 59% for those aged 18-34.
    • Age of Achieving Financial Independence (Average response: 29): People, on average, believe that financial independence is achievable by the age of 29.
  3. Milestones for Financial Independence:

    • Age Range for Achieving Milestones (20-30): Life milestones associated with financial independence are generally expected to be reached between the ages of 20 and 30.
    • Examples include paying rent at parents' home and having a full-time job (age 22), renting your own home and getting a credit card (age 24), and paying off your student loan (aged 29).
  4. Financial Independence Retire Early (FIRE):

    • Definition of FIRE: FIRE stands for Financial Independence, Retire Early, where individuals aim to achieve financial freedom and early retirement by saving and investing a significant portion of their income (50-75%).
    • Methods of FIRE: Living below means, pursuing additional income streams, strategic investments, and minimizing tax liabilities through tools like ISAs.
  5. Challenges and Changes in Milestone Ages:

    • Challenges for Younger Generations: Rising living costs make it challenging for younger generations to contribute to family finances or achieve financial milestones early.
    • Age Disparities in Receiving Family Support: Older generations stopped receiving financial support around age 22, while those aged 18-34 do so at 25.
  6. Future Outlook and Home Ownership:

    • Expectations for Future Generations: 58% of respondents believe the average age for reaching financial independence will be older for future generations, with 5% thinking they might never reach it.
    • Home Ownership Challenges: 20% believe home ownership is achievable only for a minority, and 15% think it's not possible without family help.
  7. Financial Tips for Achieving Independence:

    • Save Money Efficiently: Consider alternatives like a Lifetime ISA for saving towards major milestones, with government bonuses.
    • Build and Maintain Credit Score: Use credit responsibly to build a good credit score, crucial for obtaining favorable deals and rates.
    • Smart Credit Card Use: Set up direct debits to avoid interest payments, and leverage protection under Section 75 for large purchases.

In conclusion, achieving financial independence involves a combination of personal milestones, strategic planning, and adapting to economic challenges, as highlighted in the Forbes Advisor survey. The FIRE movement represents an alternative approach, emphasizing early retirement through disciplined financial practices.

What Is Financial Independence? (2024)
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