Financially independent

What does it mean to be financially independent?

Whether we’re forced to or choose to, most of us will stop working for a living one day. To have the same lifestyle and quality of life once you retire, you need to reach a point where your net worth, and the income your assets generate, are large enough to cover your expenses for the rest of your life. This is called financial independence. 

The reality is that many people retire without reaching financial independence, and then need help to cover their expenses. That’s why this is such an important concept to understand and an essential goal to achieve.

How much is enough?

How much money you need to become financially independent is different for each person. The lower your expenses are each month, the less money you’ll need to maintain your lifestyle and the more you’ll be able to save towards all of your financial goals. 

We’ll cover this in more detail in the Savings course. For now, it’s important simply to understand the concept, and to remember that for every month that you can keep your expenses low enough to save some of your income, you get a little more financially independent – which is the ultimate goal that you’re working towards as you improve your financial health.

The rules for achieving financial independence

The rules for achieving financial independence – along with all of your other financial goals – are simple (although not easy):

1. Avoid unnecessary debt
2. Keep your expenses low 
3. Reinvest the income you receive from assets
4. Don’t increase your living expenses when your income increases or when you receive a bonus
5. Consistently repeat the first 4 steps over a long period of time

The key to financial independence

Financial independence lies in how you control your living costs and expenses. 

Ultimately, you have 2 options: 

1. Accumulate many assets that generate a lot of money to cover a high cost of living
2. Have fewer expenses and enough assets to cover a low cost of living

It’s much easier to live a simple life with fewer expenses than it is to maintain a lifestyle with high living costs. Driving luxury cars, living in expensive homes, buying designer clothes and accessories might make you FEEL rich, but it doesn’t mean you ARE rich.

So the trick to growing your wealth is to keep your expenses low and free up more money for saving and investing.

Tip: Follow our other 3 courses for in-depth practical insights into how you can put these rules into action in your own life.

Let your money make money

If your salary increases, you receive a bonus or you start earning an income from your assets, don’t be tempted to spend all that money and increase your living expenses. Rather reinvest the money in more assets that will increase your income even further. By being disciplined over a long period of time and reinvesting your money, you’ll be able to reach financial independence sooner than you think.

Sure, it’s not always going to be easy – especially when you see people enjoying expensive things that you would love to have. But now you also know that what we see on the surface isn’t always the truth, and we sometimes need to challenge the way we think about money and what it means to be wealthy.

So rather think about the big picture: If you save and invest enough, one day you will be able to cover all of your expenses by using your savings and investments – while your flashy friends will probably still be knee-deep in debt trying to keep up their expensive lifestyles.