If you are reading this blog, chances are you are seeking financial independence. And everyone has a different definition of what financial independence means to them, and why they seek it.
In today’s post, I wanted to discuss the what, why and how of financial independence, as well as share with you some insight about my background and motivations for seeking a lifestyle that will allow me to achieve the FIRE (Financial Independence Retire Early) lifestyle.
Let’s start with what financial independence means to me.
Also, I should point out that this post may contain affiliate links.
What Does Financial Independence Mean to Me?
To me, financial independence means total and complete freedom.
According to Wikipedia, financial independence is:
“[T]he state of having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income and/or cash flow from dipping into the assets that is at least as great as their expenses.”
No matter how you dice it, financial independence means that I can go where I want, when I want, whenever I want.
It means I can spend more time with my Wife and kids. It means I can send my children to private school without worrying about the cost.
It means that if I want to stay home for a week and play with the kids, I can do that.
It means that if we want to take off to Florida, or to Europe, or RV-ing across the country for a month, or go anywhere else, we can do that too.
So in a nutshell, financial independence = FREEDOM.
If you aren’t financially independent, then you aren’t free. You are required to work at a job you may or may not like. You are required to spend time away from your family and kids to generate income to meet your expenses. You are unable to take vacation when you want or just take time away from your office if you wanted to.
Why Do I Want Financial Independence?
So now that you know how I define financial independence, why is it so important to me to achieve it?
Here’s a short story that illustrates why this is important to me.
Right now my daughter is 5 years old. She is starting kindergarten this fall. I also have two sons, one who is 7 and the other is 3.
But my daughter is my baby. She is and always will be, my little girl. I love all my kids, but her and I have a special connection that you can only understand if you have children.
And just about every morning, the first thing she says to me when she wakes up is “Daddy, do you have to go to work today?”
The weekends are awesome because I can tell her that I don’t have to go to the office. The look on her face when she realizes that I can play with her all day is priceless. It is a look of complete and utter joy that can only come from the face of a 5-year-old.
But on most days, when I do have to go to the office…
Her look is complete disappointment. And even after I tell her that I do have to go to the office, her response is typically, “Then can you come home early today to play with me?”
Good God, I love that girl so much. She just wants to spend every waking minute with her Daddy, and that never gets old.
So that’s my why. That’s why I seek financial independence.
One of these days, in the not too distant future, I want my little girl to wake up and ask me that question and I want to look her in the eyes and tell her…
“I don’t have to go to work today sweety, and I don’t have to ever go again.”
That’s true financial independence, and to spend more time with my family is why I want it.
How Do You Achieve True Financial Independence?
I’ve written about financial independence before in the context of how much money you need to retire. Acquiring enough money to retire off the passive income you receive from your financial assets is just one way to achieve financial independence.
But here’s the little secret that nobody will tell you.
You don’t have to save a million dollars (or, in my case, $1.5 million) to become financially independent. You can still retire without a million dollars in the bank.
How do you do that?
You acquire sufficient passive income streams to fund your lifestyle.
In other words, if I need to earn $50,000 per year to become “financially free”, then I could either have $1.25 million in the bank ($1.25 million times 4% equals $50,000 per year), or I could generate enough passive income to fund a $50,000 per year lifestyle.
So you could have nothing in the bank, but if your business interests were throwing off enough passive income to pay for your lifestyle, with minimum effort on your part, then you have now become financially independent.
I first read about this idea in the 4-Hour Work Week by Tim Ferriss. Pat Flynn also talks extensively about this idea on his blog, Smart Passive Income. So while I wish I could take credit for this idea, many other people who are far smarter than I have already talked about it extensively.
Other Bloggers Who Have Achieved Financial Independence…
If you think the idea of achieving financial independence early in life is just nonsense, consider this list of bloggers that have already done it:
- Michael from Financially Alert. Micheal retired early at the ripe old age of 36! Although he still works on projects he loves, for the most part, he is a stay at home father, blogger, and investor.
- Joe from Retireby40.com. Joe quit his job as a programmer at Intel to stay at home in 2012. Yes, his wife still works, but I’m not going to hold that against him – they are saving her entire salary because they can live off the passive income from their investments.
- Mr. Tako Escapes. Although Mr. Tako is not this bloggers real name, his story is very real. He retired at age 38 with $2M in the bank. He acquired his wealth by living frugally and saving $50,000 per year, all while working a job that paid him less than six figures per year!
- Steve from Thinksaveretire.com. One of my favorite FI stories, Steve and his Wife sold their houses and retired early into an Airstream named Charlie. An awesome story of financial independence.
- Financial Samurai. Another shining example of what can be done if you buckle down, live beneath your means, and save the majority of your money. Early retirement can be yours.
- Mr. 1500 from 1500 Days to Retire. Mr. 1500 set a goal to retire 1500 days after he started his blog, and from the look of things, it appears that he met his goal. He is in his early 40’s with a Wife and two kids.
Do you still think financial independence can’t be attained? This is just a small sample size of other people, just like you and me that have done it.
After reading these stories of inspiration, I’m more determined than ever to become financially independent as quickly as I can.
Where Do You Stand on Your Road to Financial Independence?
I will be posting monthly updates on our road to financial independence through my monthly financial snapshots and income reports. But I’m curious, where do you stand?
Please feel free to comment and let us know!