The Power of Financial Independence! Can you feel it?! No? Not yet? Don’t fret! You likely can find a way there!
Many people report negative feelings regarding money and their financial situation.
Dread.
Doubt.
Directionless.
Stress.
Anxiety.
You get the picture. It’s not pretty.
Personal finance can be quite an ugly field when things aren’t going good for you. When life keeps handing lemons and you just can’t seem to squeeze any lemonade out.
If you are sick and tired of being sick and tired when it comes to money, look no further than analyzing what and how to reach financial independence.
Let the Power of Financial Independence flow through you!
Financial Independence
Now, let me start off by reminding you that there is no magic cure. No magic bullet. No genie in a bottle. No golden ticket to financial independence.
It’s not going to happen over night and it’s not going to be easy.
There is going to be a lot of obstacles and some of them won’t be in your control (cost of living, health, taxes, economy, etc.)
But there is power in financial independence. There is:
- Ability to live a life of your design
- Financial security
- Financial safety net
- Wealth Building Turbocharge
- Financial Independence, Retire Early (FIRE)
- Freedom and Liberation
This post is dedicated to looking at just what the Power of Financial Independence is!
Power of Financial Independence
- Live a life of your design
Life is short.
Nobody wants to work for money to survive their entire life. To spend every moment on this earth earning money just to keep living to earn more money, and never get to enjoy the fruits of that labor.
Financial independence allows you to harness the power of control over your finances to open your life up to your own design. YOU get to choose what work you do, how long you do it, for who, and what you do and where after you are done!
One of the basic tenets of financial independence is to reach a point where you passive income (income from investments or passive ventures like royalties or affiliate commissions) meets and surpasses your level of expenses. You essentially have reached a point where you are “work-optional.” Your investments/business ventures can sustain your standard of living without additional inputs.
Before you hit this point, you are at the mercy of an employer or a client. You have someone else who partially directs your life and how you spend it. When you reach financial independence all of this changes!
Now you are the boss! You have the power! To decide who you work for, what you do for work, how much you work, and you are in the driver’s seat. You get to direct your life. Who can leave a dead end job? YOU! You can get away from a toxic environment. The power is with you.
What would you choose to do differently if you investments paid for your basic living expenses?
- Greater financial security
As we’ve seen from the COVID-19 pandemic, job security isn’t necessarily the most important type of security you can have.
Financial security is of the utmost importance.
Jobs come and go. Bosses change. Co-workers leave. Job titles and duties can change in an instant. Your work could be deemed “redundant.” It’s not very likely that you will stay in the exact same job, with the same employer you whole life.
Prioritize your financial security over job security. Becoming financial independent puts you in a spot to weather the storms of job change, new bosses, toxic co-workers, and make the choices that better your life.
Not being dependent on a traditional salary is a huge perk of being financial independent. It doesn’t mean you need to stop working, but you get to be in control over whether or not your role suits your needs and wants in a job.
This is powerful stuff!
What things in your current role would you love to toss out? What would you rather do for the majority of your “working” hours?
- Financial Safety Net
If 2020 taught us anything, safety nets are important. When they don’t exist, or take too long, or expire, things get super stressful (to say the least).
Much of MoneyTwitter will tout that “2020 was the BEST year ever.” And maybe for those who were privileged enough to not experience loss or the financial hardships associated with COVID-19. To me, it’s such a tone deaf claim to make.
But, what these outrageously callous claims do show us, is that financial independence is a personal safety net.
It can save you from some of the financial hardships you may have to weather. Shield you from the prospect of being job-less in a pandemic with little government assistance to help you.
Having savings and investments that can cover your expenses while you are unemployed is a game changer. If you experienced layoffs due to a downturn or a pandemic, you’d be a better position to survive without government stimulus.
THAT being said, that doesn’t give you a free pass to look down on or dismiss the needs of others for government assistance! (CANNOT EXPRESS HOW INFURIATING THAT IS TO SEE ON TWITTER!) Maybe use your privileged position to advocate for others…. maybe, please?!
As we know, there are some things in life you cannot plan for. But financial independence is that safety net that helps to catch and save some of the troubles you may face.
- Wealth Building Turbocharge
Who doesn’t like the sound of a wealth building turbocharge?!
The quicker you reach financial independence, the sooner you can harness the power of financial independence to grow your wealth. Once you’ve reached financial independence any additional income from salaries, wages, etc. can be lumped into your investments that isn’t needed to live off of.
With compound interest, your larger accounts will grow and accumulate much faster. While your additional salary you stash away may not seem like much, it’s adding to an already very large snowball! Watch out, because it’s going to catch some speed and take off!
By reinvesting the dividends and growth you see from your investments, you will truly see wealth building on turbocharge.
By continuing to live below your means, continuing to do meaningful work of your own design and get paid for it, you can add fuel to your financial independence fire!
- Financial Independence, Retire Early (FIRE)
Or FIOR- financial independence, optional retirement, as my friend Ed from educatorfi.com likes to focus on!
FIRE or FIOR aside, by reaching financial independence you truly put yourself in the driver’s seat of life. You can design and direct a performance that sees you duck out of the work force early, or lets you stay in until you no longer find enjoyment or become burnt out.
FIRE is one of the more popular acronyms in the personal finance blogosphere, but I think for teachers and other professions, FIOR is a better term. We often don’t want to leave our jobs early, we love them, but we definitely want the option too.
As a teacher, if I ever feel myself not being the person my students need me to be for them, that’s probably a good sign I need to step away from teaching. But without FIOR, I can’t make that choice. I can’t do what’s best for me or my students.
Perhaps you want the option to take a mini-retirement! Very popular in the PFworld as well right now.
You could take a big trip of a lifetime with your children, or take time away from work to spend time with an ailing loved one.
The power of financial independence is you get to decide. You get to live life. You get to design your life.
- Freedom and Liberation
If your passive income exceeds your minimum expenses you will have greater flexibility. This flexibility allows for greater peace of mind. It frees you from working to live. And allows you to live without worry of work.
It helps to ease financial and professional stressors. Knowing that you are no longer dependent on claiming the career ladder is a huge plus.
Without these stressors, we can lead a happier, more fulfilling life.
Financial independence provides freedom and liberation from the work to live experience. Let your money work so you can live!
But Financial independence seems so far off?
Financial independence seems like a dream. And like most dreams, people struggle to reach them. Or they psych themselves out into thinking its an impossible goal.
But what actually prevents people from reaching FI? and enjoying the powers o financial independence?
Financial illiteracy
Financial literacy is often one of the major hurdles to becoming financial independent. It takes some knowledge, advice or guidance to even become aware of this possibility (so the fact you are here is a great sign for you!)
Without some basic understandings of how personal finance works, it’s really hard to get yourself on the right path. And even harder to achieve something as challenging as financial independence.
I highly encourage people to become more financial literate through consuming personal finance books, blogs, and podcasts. However, there is a saturation point where more knowledge without action is pointless. So consume at your leisure, but know that you also need to take action and balance those two out.
To get jumpstarted without spending weeks learning about personal finance, you may wish to speak to a certified financial planner (CFP) and/or a fee-only financial advisor. I tend to prefer the certified financial planner, and I work with one who is completely FREE thanks to being recommended to them from one of their investing clients.
So, get started learning more about personal finance basics and start taking action.
Short Window of Time or Lack of Dedication to the Long Game
Financial independence and building wealth is a long game.
There are no warp speed shortcuts to allow you to reach financial independence without some work and effort, and especially, time.
Unless you have been blessed to win the lottery, receive a sizable inheritance, or strike it rich on a business idea, you likely can’t become financial independent over night.
Instead, you will need to dedicate some time to developing and putting in action your financial independence plan. This generally will take a few years at minimum, especially if you haven’t been following some basic personal finance principles like living below your means and having a high savings rate.
Harnessing the power of financial independence is not an over night game. It’s a long game that requires some dedication, sacrifice and planning.
Generally, the rule of thumb is 25x your yearly expenses will yield enough to deem you “financially independent” via the 4% withdrawal rule. Therefore, you likely need to invest time, money and discipline to reach FI!
How can you start to achieve financial independence?
Getting started on the path to financial independence isn’t too painful. And it’s definitely not high risk! Even if you miss your target you are going to end up in a vastly better financial situation!
Generally, this is the advice for getting started “righting the financial ship:”
- Add up all your debts/liabilities to find out what you owe (Balance sheet)
- Add up all your assets to find out what you own (Balance sheet)
- Find your Net worth (Assets- liabilities)
- Track your income and find your average monthly income/expected monthly income
- Track your spending for 1-2 months at minimum
- Use an app like Mint or Personal Capital
- Begin building a budget that seeks to maximize your cash flow
- Look for places in your budget to “trim” the excess
- Create an emergency fund
- Save and Invest your cash flow
- Find ways to increase your income to boost your cash flow
While that seems like a lot. To be honest, it’s not as bad as it seems. Once you’ve got these steps down, you can begin learning and putting into action more complex FI strategies like tax optimization.
Regardless of what approach you take, you want to be sure to make a plan and stick to it. Perhaps you will consider finding a certified financial planner to help you develop your own, personal FI plan!
Then you’ll be well on your way to enjoying the POWER of Financial Independence!
Teachers- be sure to check out my post on Financial Independence: Can Teachers Reach it?