Financial independence is all about being in control of the financial health and future of yourself and your family. The desire to free your family from the chains of the 9-5 workday, daily work commutes, and being subject to the whims of your employer. I believe financial independence is one of the most important aspects we should all be striving towards.
Unfortunately, most people don’t have an understanding of what financial independence is, or why it’s important to consider attaining it. The truth is, at some point in each of our lives, we’re going to need to retire from work.
Many of you will become dependent on the government for your basic needs, some of us will not. I don’t know about you, but I’m unwilling to put the last half of my life into the hands of the government.
We’re going to explore the reasons why I believe everyone should consider financial independence. It’s so much more than simply trying to “get rich” or amass wealth. It’s about doing your part to be financially responsible for your own well-being.
17 reasons to consider financial independence:
More time with your family and doing what you love
The feeling of being responsible for your family
Being prepared for financial emergencies
Be able to make money in recessions
Choosing when, what, where, and for who you work
Improving your self-control
More time to volunteer or give your time
Passing on financial lessons to children
Increasing financial communication with your partner
Financial security for your family should you die
Pay off debt faster and stay out of debt longer
Free yourself from the burden of debt
To be a good steward of your money
Not relying on a company pension for retirement
Better sleep at night knowing your finances are under control
The ability to pursue opportunity should one arise (across the town, country, world)
To be a shining example to others
Financial Security is an Illusion
You’re never truly financially secure. There’s always financial risk threatening your way of life. Whether it’s stock market risk, real estate market risk, economic risk, wartime risk, pandemic risk, health risk, etc…
People who consider a 9-5 job as secure are gravely mistaken. I work in one of the most fast-paced industries on the planet (SaaS). Every quarter we’re acquiring someone, being acquired, changing products, pricing, and strategy.
Any day of the week our private equity owners could shut our doors and give our tech to their next favorite acquisition. I’ve seen us do it to other companies, it’s naive to assume it won’t happen to us.
Job security is a myth as made evident during The Great Recession and the COVID-19 pandemic. When a financial downturn occurs, companies will cut where it’s needed. Employees are the largest liabilities a company has. Between salaries and benefits, they would drop you in a heartbeat.
What is Financial Independence?
You are financially independent when you have enough assets to pay your expenses for the rest of your life without having to depend on a W-2 income. For example, if you have $1.5 million in retirement accounts, then you can pay yourself $60,000 per year in retirement and reasonably assume it will last for 30-years. This is based on the Trinity Study.
If your expenses are relatively low, then you may be able to reach financial independence at a lower total financial independence number.
There are many forms and flavors of financial independence. There’s those that want to retire early, those that want to invest aggressively so they can coast into retirement and those that want to retire with fat pockets and high expenses.
How to Achieve Financial Independence
Achieving financial independence is the result of making many right choices for the long-term. In essence, it’s implementing a budget, saving an emergency fund, increasing your savings rate, and investing in the stock market.
There’s a lot of wiggle room in my philosophy and that’s simply because financial planning is never a one size fits all situation. I believe executing consistently on those 4 pillars of financial freedom will lead you to where you desire to go.
If you want to learn more about achieving financial independence, I have a stand-alone page dedicated to learning How to FIRE.
Why People Don’t Achieve Financial Independence
As with anything that’s worthwhile, people fall short of reaching financial independence due to many reasons. Most of which are reasons within our control.
Contrary to popular belief, expense ratios are not what’s keeping you from achieving financial independence.
12 Reasons we fall short:
FOMO (fear of missing out)
Caring about what others think of you
It’s easier to depend on others
Negative attitudes towards the future
Not willing to work or learn new ways to make money
Lack of responsibility and ownership
Lacking in self-awareness
Improper use of debt
Poor financial communication with spouse
Get rich quick mentality
Financial independence is worth it because it’s the right thing to do with our money. We don’t work just to cover our expenses, but to pay into the systems that will hopefully help support us later in life.
Unfortunately, we cannot be sure these systems will be in place or be solvent when we need them the most. Investing for our own future is self-insurance against the government doing what it does best, mismanaging funds.
By working towards financial independence we’re being socially responsible and ensuring that we won’t become a burden on those around us when that time comes. A side-effect of living this way is that you will likely enjoy the fruits of your investment long before you decide to retire.
I sincerely hope you take a hard look at what’s possible when considering financial independence. Even if your goal isn’t to reach $1 million by the age of 40. I believe you’ll have a much better quality of life over the long term if you implement some of these financial strategies.