The idea of financial independence is something I've been thinking about a lot lately. I recall coming across the term several years ago, before I paid too much attention to personal finance. I figured it sounded nice but was something reserved for the very wealthy. Either you inherited a lot of money or easily made six figures. A person in that situation, I thought, would then be able to save so much money in a short period of time that they would not longer need a job, therefore becoming financially independent. Since I had not inherited a large sum of money and didn't see myself making over 100k anytime soon, I wrote it off as unattainable for someone like me.
Now, while an inheritance & large salary can certainly help in the path to financial independence, what I have come to learn is that they are not requirements, In fact, I don't even think either of those would be considered the number one contributor to achieving such a goal. At the end of the day I think it's more about spending less than you earn, and investing the difference wisely. Now, that's easier said than done. Especially in America. Land of the "upgrade" and the "bundle". So many sources willing to lend me money for the right fee. So many Jones's to keep up with. But I digress.
"Ok", you might be thinking, "but I do save money & invest it wisely. It's call my 401(k)/IRA/Roth IRA/etc. But those funds are reserved for when I'm 65 and retire for good. That could be considered financial independence, right?" Technically, yes. However, I should mention that another term often comes up when discussing financial independence, and that is early retirement. You may come across the acronym FIRE (Financial Independence and Retiring Early). And here is where the biggest shift from the traditional American career arc takes place. Most people can accept the idea of saving money in a retirement account until 65. Not everyone may do it, but at least they know they should. But to retire before that age? The general response is most likely something along the lines of: "If I were a government worker, then maybe at 55 or 60. Otherwise, you'd have to be crazy to even consider it. We all know social security is heading the wrong direction and pensions are mostly a thing of the past. Medical bills are going to be huge and my kids aren't going to let me stay with them. If anything, I should consider working past age 65."
Are these valid arguments? They are not without merit. You'll often hear reports about the high percentage of people that are not prepared to retire. So I propose the question, "does it have to be this way?" If there's a chance it doesn't, and financial independence and early retirement would generally be considered good things, then why aren't more people doing it? The short answer is it's not easy, but the better answer is more complicated than that, and requires it's own blog post, which will be coming next.
Now, while an inheritance & large salary can certainly help in the path to financial independence, what I have come to learn is that they are not requirements, In fact, I don't even think either of those would be considered the number one contributor to achieving such a goal. At the end of the day I think it's more about spending less than you earn, and investing the difference wisely. Now, that's easier said than done. Especially in America. Land of the "upgrade" and the "bundle". So many sources willing to lend me money for the right fee. So many Jones's to keep up with. But I digress.
"Ok", you might be thinking, "but I do save money & invest it wisely. It's call my 401(k)/IRA/Roth IRA/etc. But those funds are reserved for when I'm 65 and retire for good. That could be considered financial independence, right?" Technically, yes. However, I should mention that another term often comes up when discussing financial independence, and that is early retirement. You may come across the acronym FIRE (Financial Independence and Retiring Early). And here is where the biggest shift from the traditional American career arc takes place. Most people can accept the idea of saving money in a retirement account until 65. Not everyone may do it, but at least they know they should. But to retire before that age? The general response is most likely something along the lines of: "If I were a government worker, then maybe at 55 or 60. Otherwise, you'd have to be crazy to even consider it. We all know social security is heading the wrong direction and pensions are mostly a thing of the past. Medical bills are going to be huge and my kids aren't going to let me stay with them. If anything, I should consider working past age 65."
Are these valid arguments? They are not without merit. You'll often hear reports about the high percentage of people that are not prepared to retire. So I propose the question, "does it have to be this way?" If there's a chance it doesn't, and financial independence and early retirement would generally be considered good things, then why aren't more people doing it? The short answer is it's not easy, but the better answer is more complicated than that, and requires it's own blog post, which will be coming next.
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