What does Financial Independence Mean to You?

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If you have read the About page or the Humble Beginnings post, you know The Dough Roller is about my (and I hope your) journey toward Financial Independence. But what is Financial Independence? Are we financially independent when we are debt free, when our portfolio reaches a certain balance, or when we retire? I was recently introduced to one concept of Financial Independence when I came across a book review of Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence over at The Simple Dollar, a finance blog that I read regularly. I was not familiar with the book, bought it, and read it in a day. The book describes the authors’ view of financial independence and how to achieve it. While I don’t agree with everything in the book (most notably the authors’ views of inflation and investing), it does a great job of describing a balanced, healthy approach to finances. That said, what is Financial Independence to me?

Financial Independence is the degree to which our money enables us to live life as we choose.

Let’s take a closer look at this definition:

• FI is a journey, not a destination: Each day, through the choices we make, we move either closer to or farther from Financial Independence. While there are some important milestones along the way (e.g., building an emergency fund, paying off all non-mortgage debt, retirement), these signs mark progress, not the finish line. For example, some view Financial Independence as the point where one can live off of savings, a pension (if you have one), social security, and the like. While the ability to live without the need of a 9 to 5 job is an important step toward Financial Independence, it doesn’t automatically make somebody financially independent. The problem is, we all know of people who are retired but just getting by and, because of limited financial resources, are not living life as they choose.

• FI is not “one size fits all”: What I want or need to live life as I choose may be very different from what you want or need to live life as you choose. The same is true between spouses, which is one of the reasons why so many husbands and wives fight over money.

• Challenge ALL Assumptions: We all make assumptions about our lives, many times without realizing it. To identify these assumptions, ask yourself how you would change your lifestyle if it meant working less or even quitting your job? What would you do for more financial independence? Would you down size to just one car? (How about no car!) Would you eat out less? Would you move to a smaller home in a less expensive city? Would you spend less on that upcoming kitchen remodel? The point isn’t that there are right or wrong answers to these questions. The point is to realize that you have a choice, and the choice affects your Financial Independence.

• Being debt free: I would love to be debt free, and in fact, could be debt free if I wanted to. How? Sell my house, retire my mortgage and other non-mortgage debt, and move my family into a rental home. Would I be more financially independent than I am today? I don’t think so. If I moved to a less expensive city, I might improve my finances, but I wouldn’t be living life as I choose (i.e., close to friends and family in an area that my wife and kids enjoy). Of course, retiring debt is an important milestone along the journey toward Financial Independence, it’s just not the destination.

I’ll conclude with two quotes that summarize nicely my attitudes toward money and financial independence. The first is by George Horace Lorimer, the editor-in-chief of the Saturday Evening Post beginning in 1889:

It’s good to have money, and the things that money can buy, it’s good, too, to check up once in a while, and be sure you haven’t lost the things money can’t buy.

The second quote is from James Moffatt, a theologian and early 20th-century Biblical translator:

A Man’s treatment of money is the most decisive test of his character, how he makes it and how he spends it.

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