What Is (and Isn't) Financial Independence?

To many families, financial independence seems to be the holy grail, the true indicator of a successful life. But the term is loosely used, and one “financially independent” family can look entirely different from another. Let’s dispel a few of the myths.


Let’s start with a fairly straightforward definition from Wikipedia.

“the state of having sufficient personal wealth to live, without having to work actively for basic necessities.”

A pretty clear, simple definition, right? But there are a few things worth pointing out which this definition seems to imply:

1. Financial independence doesn't mean debt-free

Financial independence doesn’t have anything to do with your level of debt. It simply says that all of your basic necessities are covered without having to work. You could be neck deep in personal loans, mortgages, and credit card debt, but still be financially independent if your personal wealth is enough to cover these and other living costs.

Still, the few people I’ve read about or know personally who are truly financially independent aren’t steeped in debt. A mortgage is typically the only financial liability they carry.

2. Financial independence doesn’t mean you’re “rich”

When you hear a story of financial independence it’s often accompanied with a picture of a young guy wearing sunglasses, cruising around the ocean on (supposedly his own) fancy yacht with a glass of champagne in his hand. But financial independence is much more nuanced. It doesn’t mean you’re “rich” by anyone’s standards but your own.

This is livin', I tell ya!

This is livin', I tell ya!

I believe financial independence is much more an expression of your anticipated state of expenses rather than your income. If your passive income is $2,500 and your monthly expenses are expected to be $2,000 for the foreseeable future (not considering inflation), then by definition you’re financially independent. By most people’s standards you wouldn’t be “rich”, but you are financially independent.

However, if your monthly passive income is $20,000 but your monthly expenses are $20,500, then financial independence will forever evade you. The person earning this sort of income is usually perceived as “rich”, but financial independence is as distant as a galaxy far, far away.

It brings to mind this quote from Charles Dickins' David Copperfield, as spoken by the lovable, though debt-plagued, Mr. Micawber.

By illustrator is unidentified [Public domain], via Wikimedia Commons

By illustrator is unidentified [Public domain], via Wikimedia Commons

“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.”







3. Financial independence doesn’t mean you’re young

Young and rich is often the image of financial independence, but it doesn’t need to be. Achieving it in our 60’s as in our 30’s is just as admirable, especially if you plan to live another 30 years beyond the age of 60!

You may ask, doesn’t that just mean you’re retired? Sure, if you want to equate financial independence with retirement. However, many couples who retire still aren’t in a position to consider themselves financially independent, no matter how much they want it. Many find they need to either work in retirement, receive financial support from their children, or significantly decrease their living expenses.


Financial independence has a general definition, but one person's independence compared to another’s can look vastly different. If financial independence is your aim, it may be worth first considering what your type of independence would look like.

  • What is a reasonable level of expected expenses going forward?

  • What income would you need?

  • Are you living on a remote tropical island somewhere, or in a two bedroom condo?

  • Are you not working at all, or still doing a bit on the side?

Your financial independence is up to you. Just know that it doesn’t have to be you on a private yacht with a glass of champagne in your hand.


Financial independence isn’t for everyone, but for some it’s a dream worth pursuing. But make no mistake. It takes incredible consistency, sacrifice, and most important, planning. If you’d like help creating a plan for your own financial independence (whatever that may look like), get in touch with me.