Setting financial independence as a goal

It will come. Yes, it has to; of course, I mean financial independence.

I am talking to you young colleagues, more especially those who are still schooling or still staying in their parent’s homes even after starting work. Yes, my finger is also on the spouses that rely on their partner for support.

If you don’t plan for financial independence now, it will ambush you because your parents or loved ones will not be there forever. Hey parent! I am also talking to you. If you rely on your child, then think twice because while society does expect children to look after their old parents, the child is not immortal—realities will one day fly hard into your face.

There are many definitions of financial independence. But I do mostly subscribe to the one that point to freedom from financial reliance on loved ones. This is a freedom that many young people earn in their late teens to mid-twenties, as they get through college, earn a degree, find a job, and separate themselves from their parents. For many people, this is financial independence. They strive to be their own person, independent of the people around them, capable of standing on their own two feet.

If you can survive for a significant period of time (multiple months) without going rapidly into debt or without a steady cash infusion from your family, then you’ve achieved this goal. Generally, it requires a decent job, a commitment to keeping that job, and a desire to actually move on from a state of dependence.

But there is yet another important financial independence—the freedom from financial reliance on creditors. This freedom occurs when you are completely free of debt. No mortgage, no student loans, no car payments, no anything. Aside from taxes, you’re free to do what you want with all of your income.

This is often used as the definition of financial independence by writers advocating a strong anti-debt position. Take note that having some productive credits is encouraged for growing your own wealth. Setting this type of independence as your goal takes a strong commitment to the “spend less-than-you-earn” philosophy.

You need to be willing to directly put some of your income straight into large debt payments in order to get rid of that debt.

Finally, but perhaps very important, is the financial independence that reflects freedom from financial reliance on employment. Many financially stable people view this as true financial independence: an end to the financial reliance on employment. It doesn’t mean you have to stop working, it just means that income from your work is no longer a requirement.

In this case, you tend to give the best of yourself on your job because you work without fear or favour—you aim only at preserving your integrity as a star performer but don’t fear being fired.

Many of the same principles for debt reduction apply when seeking freedom from financial reliance on employment. Spend less than you earn and invest the rest of it for the long term.

Work on maximising your income and minimising your spending and stock away that difference into active and passive investments. This means not only maximising your career, but maximising your frugality, too—know the real value of your time and do things with that time that produce value.

Financial independence is a great goal, but as with any goal, you have to define exactly what it means for you and then define a plan to meet that exact goal. Without that exact definition, you’re just whistling in the dark. Have a blessed weekend!