Financial Independence (also known as FI) = the point at which one’s passive income plus sustainable asset withdrawal is greater than their living expenses indicating that the individual no longer has to work for money.
“Financial Independence” is sometimes also referred to as “Financial Freedom”. They are the same thing.
Freak Speak: Passive Income = Income one makes even when they are not actively working. There are many types of passive income; some simple and some more complicated.
Passive Income Example: Imagine you owned a condo, but instead of living in it, you rented it to someone else. They would pay you rent each month. With that rental income, you pay someone else to manage the house and the tenant. After all of your expenses (including the management fee), you have $200 extra each month. You do no actual work, but make money each month. You’re making money 24/7; when you’re in class, at another job, on a bike ride, and even when you’re sleeping.
Freak Speak: Asset withdrawal = The act of taking money or value out of an existing asset. For example, if you had $1,000 in a checking account and took $100 out in order to make a purchase, you have made an asset withdrawal.
“The FI strategy gives you power. It gives you the ability to take control of your life. And it’s really worth it.”
Why is financial independence important?
FI can allow you to buy lots of fancy, material things, but that’s not its primary benefit. The best part of FI is that it permits you to enjoy your most precious resource: your time. Ask yourself this question: “What brings you the most happiness?” Spending time with your friends? Traveling? Going to the beach or mountains? Being outside riding your bike or maybe spending the day with your family?
No matter which way you answered, you need the time to do it. If you are working 40 to 60 hours a week, it is much, much more challenging to find time to do the things you enjoy, whether it’s riding your motorcycle or having lunch with a friend.
If you spend the time to learn and use the simple strategies within this blog, you will find yourself on the path to FI at a very early age. All you have to do is read and learn and have the courage to do things differently than the average person.
How can I learn more about reaching FI?
- Earning more
- Developing passive income
- Saving more
- Investing wisely
- Reaching financial independence
- Breaking the rules
- Becoming financially literate
- Retiring before their parents
- Learning from those who have already done it
- Being frugal
- Checking accounts and savings accounts
- Tracking their spending
- Building great credit scores
- Using credit cards
- And more!
So what are you waiting for?