Updated on 10.06.10

What Does “Financial Independence” Really Mean?

Trent Hamm

“Financial independence” is a phrase often bandied about by people without any sort of consistent meaning.

Does “financial independence” mean complete freedom from debt?

Does it mean the ability to switch jobs without creating a financial panic in your household?

Does it mean having enough money to survive without further income?

Does it mean having enough money to thrive and chase whatever endeavors you like without further income?

Here’s the thing: they’re all definitions of financial independence.

Why so many different definitions for the same phrase? It’s simple: different financial writers use the phrase differently. They all tend to agree that “financial independence” is a worthwhile, lofty place to aim your financial efforts towards – they just can’t quite agree on what exactly that phrase means.

I subscribe to the idea that financial independence means that you have enough money to survive without further income. That does not preclude you from working for additional income. It merely means that if you were to quit working today, you would not lose any significant part of your way of life due to a lack of a working income.

I view many retirees as having reached this level of financial independence, for example. Retirees often do not have to work to maintain a basic lifestyle, but often choose to work out of a desire to do something interesting and productive with their time, and also a desire to live a lifestyle beyond their idea of a basic lifestyle – travel, services, a nice home, and so forth.

Others might have different viewpoints. Financial independence might occur for them once they’re outside of the burden of excessive debt. Others might feel independence when they can freely switch jobs, or when they have the ability to start their own business out of pocket.

The important question isn’t what financial independence means to me or what it means to some financial writer out there. What matters is what financial independence means to you. What does it mean to you?

On one level, this discussion really is about goal-setting. Many people look at financial independence as a state beyond what they currently have – and it’s something that has attributes that they want. Do you want the ability to easily switch jobs without panic? Do you want the ability to survive without having to work? Those are goals that all fall under the umbrella of financial independence.

The key part is to turn that idea of financial independence that you have in your head and in your heart into a long term goal, one that you’re planning on reaching in the future. What can you do today to move towards that definition of financial independence?

What’s the importance of writing about this? Whenever you read an article by a financial writer and the writer mentions “financial independence,” consider for a moment what that writer is actually talking about. Does it match what you define as financial independence? Or are they talking about something else?

This way, you’ll quickly know whether the information presented is directly relevant to you or whether you have to look for information within the article that is still useful to you even if you aren’t in line with the goals discussed in the article.

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  1. Johanna says:

    To me, “financial independence” means financial independence from my parents – paying all my own bills out of my own earnings, with no more help from them. It’s something I achieved more than 10 years ago, and it was an important milestone to me at the time.

    I know that some people use “financial independence” to mean all those other things, but they all sound very strange to me. I think there are other terms that better fit each of those other meanings (like “debt free” or “ready to retire”).

  2. Amanda says:

    I’ll feel financially independent when I owe no one. Including mortgage. It gives me a good long term goal!

  3. valleycat1 says:

    Good point, Trent! Sometimes I get caught in a trap when I think someone is writing or talking about one thing & they really mean something else.

    I always think of financial independence in general as making your own way through life, basically as Johanna says, whether or not you’re carrying any loans from financial institutions or credit cards – as long as you can afford to make those payments.

  4. moom says:

    I would have assumed that everyone meant “financial indpendence” in the way Trent used the term. But apparently not. It would be helpful for Trent to point out some writers who seem to use the term in a different way. How can we know how different writers are using the term?

  5. Jason says:

    Trent, so nice to see someone stating that “financial independence” really is a personal and unique goal. I’ve always believed that, but so many financial writers have their own very strict definitions, many that lead a reader to believe financial independence is an almost impossible dream. When I define my own financial independence, the only person who can keep me from achieving it is me. Thanks for a wonderful blog and all the wonderful advice!

  6. I agree with you on this one. On my way to FI I’m determining how much (or really, how less) I need to live on. My income can fluctuate as my life changes but I don’t want that attached to my expenses.

  7. Sarah says:

    Learnvest.com a website that aims to help young people, especially women, with their finances did a post on FI:


  8. Piggy Bank says:

    I love the comments so far, because it shows exactly what the article is talking about. For me financial Independence is the point where I can live the life I want too without having to work. I plan on working for a very long time, but I hope to get to the point that I don’t have to within the next decade.

  9. almost there says:

    I agree, FI as written in the FI bible “Your Money or Your Life” was all about not working for an income to be able to meet your needs. That is the true meaning in my mind of FI. When income exceeds the expenses one is in FI land. Income can be passive like ROI or retirement income.

  10. I think that the definition of finanicial independence is a truy personal decision.

    I’m sure it means many different things to many different people.

    Financial independence to me, at the moment, means being able to figure out a way to let go of my day job and still support myself and my son (I have two fledgling side businesses).

    If I could achieve that, I wouldn’t be too worried about the minimal debt that I have at the moment.

    I think it can only be defined by the individual.

    So, before you try to reach for financial independence yourself, I think you need to sit down and deicde what it means for you…

  11. Kris says:

    To me, financial independence means being able to live life without worrying about money – free from debt, freedom to buy (with limits that are meaningful to me), free from worry.

  12. ABQBrent says:

    Thanks for this article. I love the idea that FI can be individually defined. I wish that personal finance writers would keep it limited to that term though. my definition: When I feel I no longer depend on anything outside of my direct control financially.

  13. In my own view, financial independence means you are already stable when it comes to money. Not necessary you don’t need to work but you are enjoying your money more than anyone else. It is something wherein you don’t seek any help from others because you can afford to buy and finance the things that an ordinary person or employee cannot.

  14. Briana @ GBR says:

    I’ll feel financially independent when I hit my net worth goal, and be debt free!

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