What does ‘financial independence’ mean?

ForesightGeneralWhat does ‘financial independence’ mean?

What does ‘financial independence’ mean?

Every year, the average person spends over 100 hours commuting to and from work, 2,500 hours at work and, believe it or not, travelling 8 miles a year on an office chair.

The reason that these statistics are so important, is that so many people are concerned with when they are financially independent and can leave work.

But what is financial independence?  The definition of financial independence is being able to support your lifestyle without having to work.  In money terms, this means not relying on your salary to meet your costs, and making sure you have enough income from your assets such as rent, dividends, interest and pensions to feed, clothe and house yourself in the style to which you have become accustomed.

What we are talking about is security.  Not having to panic about unexpected bills.  Not having to return to work after having children until you are ready.  Being excited about a redundancy instead of worrying about losing your home.  And sleeping soundly at night because you’re not worried about your financial situation.

Our job as Wealth Strategists is to find your number.  The amount of money that you need to make you financially independent.  This amount varies greatly between individuals, but there are a few common traits that most people who have achieved it seem to have mastered.

Firstly, they make sure that they pay themselves first.  To reach financial independence you need to be somewhat selfish.  Prioritising saving ahead of everything else.  That means saving before you pay the utility bills, buy groceries or even pay the mortgage or rent.  Paying yourself first encourages you to live on a smaller budget and is a powerful saving habit.

Secondly, it’s equally important to keep investing in the long term.  You have to invest in the stock market through the good years and the bad years.  It can be psychologically difficult to buy stocks when the price is going down but, if you don’t, you will probably miss out on the recovery.

But the real key to financial independence is to spend less than you earn.  It might sound simple and easy but so many people are trying to keep up with the Joneses.  It takes a lot of diligence to spend less than you earn but, by keeping a track of your expenses and seeing what you spend money on, you can cut out the things you don’t need and keep your expenses down.

Anyone can take these steps to start on the road to financial independence and you don’t need much to get started. So, take a break from the working and spending treadmill and start making a difference to your future.

What are you waiting for?

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