Toward Financial Independence

If one advances confidently in the direction of his dreams, and endeavors to live the life which he has imagined, he will meet with a success unexpected in common hours. — Henry David Thoreau

In the midst of our rush to earn money, our scramble to save for retirement, our focus on frugality, it's easy to lose sight of why we're doing this. What is the goal? What is it we're trying to do by getting rich slowly? For me — and for many others — the answer is to achieve Financial Independence.

What is Financial Independence? Why is it a worthy goal? To me, Financial Independence means “getting out of the rat-race”.

Your Money or Your Life — still my favorite book on frugality and personal finance — defines Financial Independence as “having an income sufficient for your basic needs and comforts from [sources] other than paid employment”. Passive Income is money that you earn without having to work for it. When you earn interest on a savings account, you are earning money passively; it accrues whether you're working or not.

Other possible sources of Passive Income include (but are not limited to):

  • Rental property
  • Stocks and bonds
  • Business ownership
  • Royalties (on inventions or creative works)

As with most money strategies, it's best to diversify your sources of Passive Income. The more sources of Passive Income you can implement, the safer your money supply.

In some ways, Financial Independence is another way to look at Retirement. Retirement is a loaded concept. Most people think of Retirement as something that will occur far in the future, something that requires lots of work and lots of investing. Most books that focus on Financial Independence ask you to change your way of thinking. They don't talk about Early Retirement, they talk about Financial Independence because it forces the reader to approach the subject from a new direction.

Some people who focus on Retirement are concerned only with increasing income and investments. People who focus on Financial Independence are just as likely to spend their energy looking for ways to reduce their current expenditures, to save money, to live cheaply. The lower your cost-of-living, the sooner you can achieve Financial Independence.

If I have monthly expenses of $3,000, then I need to earn $3,000 a month in Passive Income to support myself. But if I my monthly expenses are only $2,000, Financial Independence is that much closer. (Can you see how this is similar to the fundamental law of personal finance?)

Financial Independence may seem like a pie in the sky ideal. It's not. This is your goal. This is what drives you. This is what you're trying to achieve. Of course it seems like a crazy dream: it's your final destination. But if you don't fix this in your head as something you want to obtain, you'll never achieve it. In order to become Financially Independent, you must make the decision to pursue it.

More about...Planning, Retirement

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Dave
Dave

Your amazon link appears to go to Small Pig (An I Can Read Book)

J.D.
J.D.

Fixed. Thanks, Dave! I made that mistake the other day, too. My wife says that I must be obsessed with “Small Pig”…

Money Matador
Money Matador

I love passive income. You can get addicted to it. People who get filthy rich as young do not retire, they are independendt and can live their own life. In a way it is badmouthing them to say that they have retired. They just managed to escape the rat race.

Great post” See you soon.

Nona
Nona

But a lot of passive income depends on having other people at the bottom of the pile. Rental property works mostly when there are others who cannot afford their own property, plus it drives up the price of housing too (everyone with a bit of spare cash doing the buy-to-let route, at least in the UK). The pressure on companies to deliver dividends and growth means they often use suppliers in poorer countries and pay a pitiful wage. Even if they don’t, they still rely on workers who are prepared to work for less. Business ownership though, that’s a damn… Read more »

HIB
HIB

@Nona I agree that owning a business is a damn good idea. I am refuting the comment made about real estate investing. I must first admit that I am biased towards real estate investing since I’m a real estate investor. I would make the case that while real estate investing is not passive to a novice, there are many ways that you can become a real estate investor and have very close to passive income. You can do this without trading your job for another job as would be the case in owning a business (I assume traditional store front… Read more »

Derrick E Smith
Derrick E Smith

Hello, I am a single male with an identical twin brother who is also single. We have no families of our own yet and we are constantly talking about investing. We have all the time to go into some type of business deal. We are poor, we know hardly ANYTHING about investing and how to make money work. We anxiously want and need a passive income of some kind. I guess what I am asking for is for somebody out there to help me with information as to how a poor guy with no money can get a great start… Read more »

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