What Does Financial Independence Mean?

Many of our posts at the Free Times are about how you can achieve financial independence faster. But have you ever really stopped to think about what financial independence even means?

You might be thinking, my parents are retired. They seem bored. Why would I want that? Well, we are here to explain why everyone should want to achieve financial independence even if you are convinced that early retirement is not for you.

Yup, that’s right, even if you are dead set on working until you are old and grey, listen up.

Definition of Financial Independence

Our definition of financial independence is exceedingly simple: Having passive income which exceeds your expenses.

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Did you notice any mention of quitting your job? Any mention of moving to a retirement community in Florida and living out your days playing golf and eating dinner early?

Nope.

You can be financially independent and work a 9-5. You can be financially independent and run your own business. You can be financially independent and run a doggy day-care. You can be financially independent and do literally whatever you want, and that’s the point. Financial independence is all about having options.

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Want to spend you days of financial independence taking care of these guys?

The word option is why each and every one of you reading this blog should strive to be financially independent.

At a minimum, achieving financial independence means even if you choose to keep your life at business as usual, you have a choice. You can go into the office every day knowing that if you end up being let go, or put on a project that you aren’t a fan of you can leave at a moments notice. That level of peace of mind is the sort of thing that can absolutely change your life. (click to tweet)

If you do in fact want to actually retire early, of course the world is your oyster!

Okay, What do I need to Achieve Financial Independence?

You might be saying, okay we get it but passive income exceeding expenses seems easier said than done! Which is true. Let’s take a quick look at what it takes to get there.

Step 1Eliminate all personal consumer debt
Step 2Acquire liquid (cash equivalent) savings equal to 6-months expenses
Step 3Invest in income producing assets until passive income > expenses

Steps 1 and 2 may very well be a herculean effort in its own right for some, but it is absolutely necessary. Eliminating high interest debt is the single most productive thing you can do to positively impact your financial situation (click to tweet) and must be done before moving on to the really fun part.

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Step 3 is less straight forward, and there is more grey area surrounding how exactly you should go about it. After all, what exactly counts as passive income?

Passive income, as defined by investopedia, is income derived from “an enterprise in which a person is not actively involved.”

Some of the main hot passive income sources are dividend paying stocks and real estate. Passive income sources can come in different shapes and sizes and come with different levels of passiveness.

When you get a call to go fix your tenants bath tub late at night are you really going to be thinking that real estate investment was so passive after all?

What is the Easiest way to Achieve Financial Independence?

It might seem like an overwhelming challenge to sift through the opportunities out there and land on passive income techniques that are right for you. Such a big challenge that some choose not to get started at all.

Don’t let this be you. We have a resource for you at the bottom of this article that will lay out every step you need to get started and ultimately achieve financial freedom. (but sneak peek it’s actually right here).

I digress, but the point is there are many potential passive income sources, and generally speaking the more money you have working for you, the more passive income you can attain.

The rule of thumb is that you need to have assets equal to 25 times your annual expenses working passively for you in order to achieve financial freedom. See here to determine when you will be able to retire.

There are many reasons that this 25x rule could be different from one person to the next, having to do with how your expenses will look after you stop working, or having to do with how your returns on your passive income producing assets will look like. Those who are willing to be a little less truly passive and riskier in their passive income investments may expect slightly higher returns.

How to Make the Best Decisions for you?

We should all aspire to get to a point of true financial freedom. But the path is fraught with decisions to be made.

Which passive income sources are right for you? How can you most efficiently lower expenses? Make the wrong choices and it could severely delay your path to financial freedom. The blueprint that I use to plan my path is right here. I am well on my way to achieving financial independence following this simple plan that anyone can use!

If only I had come across it earlier…