The term "Financial Independence" gets thrown around a lot and it can mean different things to different people. With this being the first week in July, since the United States is getting ready to celebrate the nation's birthday and independence on July 4th, I thought it would be great to talk about achieving financial independence.
Wikipedia defines Financial Independence as: a term generally used to describe the state of having sufficient personal wealth to live, without having to work actively for basic necessities. While that is the technical definition and what you will hear most financial planners use, I feel that there are different stages of becoming financially independent. They are:
Independence from Debt. A lot of the listening audience is already experiencing this feeling and the rest of us are trying to get there. But becoming debt free is an amazing feeling; as hard as I try, I can't fully describe the feeling it brings upon you. But when you are independent from debt you are actually able to control your cash flow instead of simply giving your money to the bank.
Independence from work. I'm not talking about retirement here, rather I'm talking about being able to do what you want to do with your career regardless of income. So often we feel like we are chained to jobs we don't like and we are just working for money to pay the bills. But when we are independent from debt, we are able to become better workers, take "risks" in our career that could have a bigger long-term payoff, and work a career that fits our lifestyles.
Independence from earning an income. This is the classic definition of becoming Financially Independent. This is where your assets are producing enough income to cover your expenses. If you have $500,000 in assets producing a 10% return or $50,000 a year and you have $40,000 worth of expenses you are able to cover your expenses without having to earn extra. This is a basic retirement calculation and I've shared my opinion on retirement before, but once you have reached this point you are now in position to stop earning an income.
But that still begs the question, is financial independence something to aim for? I share my opinions and thoughts on that as well. But as for you: Is financial independence a major goal for yourself? How close are you to reaching that milestone?
I also have special news for those listeners who have an iPhone. The JW's Financial Coaching app is now available to download. The app allows you to choose a lesson, view its show notes, and listen to the show, all right from your iPhone without having to browse the web.
You can subscribe to future podcasts through Feedburner, Stitcher SmartRadio, or iTunes. Or you may listen to the podcast on the JW's Financial Coaching Facebook Fan page. In addition, if you have enjoyed the show for a while now, please leave a review of the podcast on iTunes. For a step by step video of how that works, please watch this video on how to leave a review in iTunes.
If you have any comments, questions, or ideas for future shows you can send them to me and I will integrate them into a future show. There are two ways to get in touch with me: 1.) Email me at JWFinancialcoaching@gmail.com - Please put “podcast” in the subject line and keep your questions brief so they are readable on air. 2.) Simply fill out the form on the contact page. Please fill out your name, email, and your question/comment/suggestion and we will read it on air.
You can find prior editions of the podcast at the podcast archive page.