Lately, there have been a rash of books, blogs, websites and podcasts talking about how to achieve financial independence, (“FI” for short). I, for one, have spent a lot of time reading about it as part of my personal finance journey. To begin with, I think it’s important to understand exactly what it means to be financially independent. You are financially independent if you have enough money to pay your living expenses for the rest of your life without having to work, or trade your time for money.
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Of course, the idea of financial independence is hardly a new one. I think as a nation, we’ve lusted after that status for decades. How many of us play the lottery, hoping for that winning ticket? Enough to send the jackpots well above $1 billion. That’s a lot of hoping and wishing!
We are willing to work for our financial independence, though. Enter the gig economy, where we can hustle for immediate cash while working on our passive income streams based on our “laptop lifestyle.” While you are building your entrepreneurial empire, make sure you are saving for retirement since contract jobs do not allow you to contribute to Social Security (just FY!).
What do you need in order to achieve financial independence? If you weren’t born with a trust fund, you’ll need to improvise. Start by keeping your living expenses low and either save over 50% of your income or create multiple passive streams of income. You need to be very self-disciplined about saving and spending. You also need to have a basic understanding of financial literacy, like how to invest and/or buy real estate. You have to be okay with delayed gratification, living tight now so you can spend your time freely later on. This may include avoiding big ticket items like fancy weddings or putting off having children (you would just have to save more to achieve FI).
As I’ve been reading up on financial independence, I started thinking about what would happen if everyone decided to quit their 9 to 5s and strike out on the road to FI. First of all, there’s no way that could happen. We need people to work 9 to 5s so our world keeps on functioning. And, I took pride and pleasure in my job. I found it satisfying using my training as a lawyer to help people solve their problems and get back on track. So, 9 to 5ers are critical to our economy, our way of life and the ability to achieve FI.
Second, I can’t see everyone committing to the extreme lifestyle you will likely have to live in order to achieve FI at a young age. If you are a regular person, in order to accumulate the money you need to pay your living expenses for the rest of your life, you will probably have to shave your expenses down to the bone and save as much of your income as you can while thinking outside of the box on passive income streams. Sound stressful? Maybe a little, ya think?
The truth is, financial independence is a pretty high goal to shoot for. It may be better to aim a little lower instead, and strive for financial stability. I had someone ask me recently if financial stability isn’t the same thing as financial independence. It isn’t. Financial, or economic stability is a lower standard that FI. You have achieved financial stability if you can pay your monthly bills, manage unexpected expenses and save for the future while maintaining your financial situation. It means you likely work for your income but, a flat tire or unexpected visit to the doctor doesn’t spell financial disaster. This is the status it is possible for most 9 to 5ers to achieve and likely the track that they are set on to complete. It doesn’t require such extreme financial sacrifice as FI and if you do it right, you’ll still achieve financial independence in retirement.
Achieving financial stability still takes self-discipline. You still need to understand financial literacy but, there’s less delayed gratification. It’s a trade-off but, it might just be a little more cushy. While I would never judge anyone’s choice of lifestyle (after all, personal finance isn’t one size fits all), I do want to remind you that your life is happening NOW. Keep that in mind as you are setting your financial priorities in line and deciding which camp you fit into, FI or FS.
Some of us are lucky enough to achieve financial independence, usually after punching a time clock for thirty years. Sadly, I believe that retiring with a pension is becoming less and less likely because fewer and fewer companies are offering employer funded pensions in favor of optional employee funded 401(k)s. It doesn’t help that many of us don’t take advantage of our 401(k)s because we don’t understand them or can’t afford to fund them, (thank you, student loan debt).
Either way, the best chance you have at achieving a financial goal is to make a plan and stick to it. If you can do that, you’ll be way ahead of the game!
P.S. Make sure you check out my online courses, books and resources, too! Investing in your money management education is an investment in yourself. That’s the best investment you’ll ever make, I guarantee it!. Don’t forget my weekly Facebook live videos on Facebook.com/newcashview, Instagram @joyalfordbrand and on my YouTube channel NCVTV. You can catch me twice, on Mondays between 3:00 p.m. and 4:00 p.m. for my Monday Money Management Minute and Thursday evenings between 7:00 and 9:00 (Eastern Standard time), for my weekly NCVTV episode. They are packed full of useful and entertaining money management information! If you’ve missed any NCVTV episodes, you can see the latest on newcashview.com or you can check out my YouTube channel and get caught up! You can get there by clicking here. Remember, like and share the NCVTV videos on Facebook and all your social media platforms, so others can benefit from them, too!
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