It’s July 4 weekend which means it’s time to celebrate Independence Day again here in America. In line with this theme, I want to reflect a little bit on the idea of “financial independence.” After all, that’s the goal that so many people are striving for, and in a way, the whole theme of this Saving the Crumbs blog.
What is it really though? I have discovered that it means rather different things to different people. Here are some ways people view this concept based on my personal observation. This isn’t scientific research or anything, and I suspect there’s a fair deal of overlap where people may hold to several of these viewpoints. Are any of these your reason for financial independence?
Financial Independence: 8 Perspectives
1. To Have Enough to Meet the Needs
For some, financial independence is attained when they simply have enough to pay the bills, put food on the table, and keep a roof over their heads. It’s simply to have the security that the necessities of life are taken care of for themselves and their loved ones.
2. To Have Enough to Buy Anything
For others, it’s not simply to meet the basic needs, but it’s to not have to think whenever they want to buy something. New iPad is out? Need a new dress? Friends are all going out to eat? Many think that financial independence is attained when they can say “YES!” to all of these things without blinking.
3. To Have More Than Enough
Yet others don’t stop there, for them financial independence is a moving target. They are constantly needing more. No amount of money is going to be enough because they find thrill in the pursuit of it. For these folk, financial independence is better defined as a state of constant accumulation.
4. To Be Out of Debt
For a growing segment of society in the developed world, being out of debt is the definition of financial independence. Freedom from the creditors! But even within this camp, there are multiple layers of interpretation. Some may mean being debt-free only from credit cards and student loans but not a house or business loan. Others may mean being free from all debt, including the home mortgage, business loan, and the twenty bucks they were spotted by their friend for lunch last week. The spectrum of how people define what “debt-free” truly is can be rather wide.
5. To Have a Job
For some people, financial independence is to simply have a job. Maybe for some it’s to have a decent-paying job, while others it’s to have any job at all! For these individuals, freedom from money worries can be attained once they can develop a dependable income stream.
6. To Not Have to Work Anymore
On the opposite end of this discussion are the early retirement folk. Their idea of financial independence is to NOT have to work anymore—to have built up enough investment assets to be able to live off the passive income it throws off. To put it technically, their assets generate income that’s more than their living expenses. For some it’s to get out of the rat race of being a “wage slave” (i.e. being entirely dependent on a job for financial sustenance) as quickly as possible (some by age 30!) while others it’s just to shave off a few years from their retirement age. Frequently, when these people reach financial independence, they don’t actually stop “working”, they simply have the freedom to choose the “work” that they find fulfillment in doing. (And as an aside, this is the definition of “financial independence” if you look on Wikipedia.)
7. To Be Self-Sustaining
There is also a growing style of financial independence that says, “Why live a lifestyle that requires money at all?” These are those who choose to live an entirely self-sustaining lifestyle that requires as little economic input as possible. Frequently this results in an off-the-grid, homesteading lifestyle. Where a family or small community produces all they need to live without requiring the imports of goods from others.
8. To Not Have to Care What Other People Think
For some, financial independence is simply the state where they can stop worrying about what others think about them, their lifestyle, their values, and their choices. This may come in different flavors. For some, it might be achieving the “wealthy lifestyle” to impress family and friends, whereas for others it’s simply to stop caring that their friends think they’re cheap because they prefer brown-bagging their lunch to work instead of eating out with them every day, and for yet others it might be some other variation on this theme.
Money Isn’t Everything…
Even though materialism and greed are generally viewed as negative qualities, it’s difficult for anyone to evade money completely. It reminds me of an idiom I’ve heard once,
Money isn’t everything, but without money you have nothing.
So in pondering over these various perspectives on financial independence, it seems to me that the common denominator for people is to reach a state where they no longer have to worry about money. There’s a recognition that money is a part of life whether we like it or not, so the best we can do is to arrive at a state where it isn’t something that we need to expend too much precious time and energy fretting over. Some realize that this can only be achieved through diligence in earning an income and disciplined saving, but others make the mistake thinking that debt can cover up their worry. In reality, they’re just exchanging one worry today for much bigger worries down the way.
An Illusion of Financial Independence
As you may have picked up already, certain flavors of financial independence can be artificially generated–at least for a while. Meaning, a facade of financial independence can sometimes be manufactured through the use of debt. But maintaining a financially successful outward appearance may belie severe indebtedness which is no independence at all. So in your own definition, just beware that you’re striving for a genuine article and not simply an illusion.
So what do you think? Anything I missed? What does financial independence mean to you? Please share with us in the comments below!