What does it mean to be financially independent? This is another one of those ideas, like “retirement,” that means something different to everyone. For some, it means being able to live on your own, not needing money from your parents’ pocketbook. For others, it means the absence of all debt. For still others, it means not having to depend on employment to pay your bills. All of these seem like valid definitions, and all of them seem like worthy goals at different times in life.
Lose the parents
Most teenagers dream of the day they can “cut the cord.” The best way to be free from Mom and Dad’s watchful gaze is to start paying your own bills and no longer depending on them to fill your gas tank and pay for pizza. Achieving this type of financial independence is also very educational. Participating in society and contributing to the economy in your own right can teach any number of valuable life-lessons.
Lose the debt
Achieving the debt-free type of financial independence can be very liberating. Many twenty- and thirty-somethings dream of being debt free. With student loans, auto loans, and mortgage loans piled up to your eyeballs, the drowning sensation can quickly overwhelm you. Think of debt as slavery, and your creditors as slave-owners. Your life belongs to them. You HAVE to go to work. You HAVE to pay a lot of money every month. You HAVE to keep paying year after year after year.
But imagine if the debt was paid off. You could do anything you wanted to do with your money (after Uncle Sam got his cut, of course). You could buy a nicer car, invest more, give more away, or volunteer more often. Without the debt, your living expenses would be a lot smaller, and so would your need for income.
Lose the job
Although not everyone strives for this type of financial independence, it can be exhilarating to achieve. After paying off all debt, the increased cash flow will allow for significant investment purchases every month. After years of sinking money into the right investments, employment may not be strictly necessary. If your investments are earning enough every month to pay your bills, you are no longer REQUIRED to work. You can work because you want to. You can take off when you want to. You can open that cozy bed and breakfast in the country you’ve always wanted.
In a nutshell, define what you want. Spend some time visualizing yourself having achieved financial independence, however you’ve defined it. Write down your goals and your plans for attaining them, and then share those plans. I’d love to hear about them.
This column originally appeared in the June 4, 2008, edition of the Greenhorn Valley View.