If you know anything about American history, you know that July 4th is the day that Congress approved the Declaration of Independence (fun fact: it wasn’t signed until August 2, 1776 — almost a month later!). But we celebrate the 4th as the day that the United States became independent from Great Britain, and it’s usually a fun-filled holiday.
Of course, when we talk about Independence Day, we can’t help but draw parallels to independence in other areas of our lives. For some of us, we felt independent when we left our parents’ house, or when we finally achieved that “coveted” level of career success. For others, independence means being able to leave that soul-crushing job, to move across the country, or to finally take that vacation they’ve always dreamed about.
But here at Guiding Wealth, we talk to our clients a lot about the idea of financial independence.
What is Financial Independence?
The technical definition of financial independence is having enough money to cover all your expenses without working. But financial independence goes beyond just having a lot of cash in the bank.
Financial independence means that you have the ability to take care of yourself and your family in spite of:
Personal or family tragedies
Changes to Social Security or other social benefits
Financial independence also allows you some flexibility and peace of mind. When you’re financially independent, you have the freedom to choose who you work for and how often. After having kids, for example, you can take the time to return to work when you’re ready. Or you can choose to take a sabbatical between job changes. Financial independence takes many forms, but the idea is simple: you can make decisions that are in line with your values because you don’t have to think about money first. Money stress is also decreased, as you know that you can weather storms like expensive repair bills or slow income months. You have what you need to get by, and that provides so much peace of mind.
Why Financial Independence is Important
In a traditional sense, most of us associate financial independence with retirement — and for good reason. It’s when the fruits of your saving labors pay off, when you can start drawing on some of those accounts that have been accruing compound interest, and it naturally feels like it’s a “good time to slow down.” But we don’t think financial independence is necessarily relegated to retirement; instead, it should be something that you’re thinking about (and working towards) at any age. Here’s why:
The unexpected can happen at any time
One of the most important reasons you should care about financial independence? It’s not the most pleasant thing to plan for, but something devastating and unexpected can happen at any time: death of a loved one, layoffs, severe illness or injury, a natural disaster that wipes out your home, and so on. Oftentimes there’s no warning, and there’s no time to scrounge for cash when something like this does happen. That’s where financial independence comes in. You can handle a huge blow to “business as usual” without the added stress of money worries. Though being financially independent won’t solve these new problems right away, it can act as a buffer while you put the pieces back together.
You can’t do your job forever
You may love your job, and you may be excellent at it, but there will likely come a time when you can’t do it anymore. Barring an unexpected setback like we just discussed above, there are a few reasons why you may not be able to work in the future.
You may not be able to handle the demands of your job, especially if it’s a physical one
Work in your industry may change, (i.e it requires an additional degree, it’s replaced by automation, etc.)
Your company is bought out or goes through significant layoffs
Family circumstances change and you need to be home more
With financial independence, a big career change (or ending) will come as less of a shock to your quality of life.
It makes life more enjoyable
Now that we’ve gone over the serious and scary reasons why you should work towards financial independence, here’s a more positive one: it makes life more enjoyable. Living paycheck to paycheck without planning for the future can be stressful. It can take a toll on your mental, emotional, and physical health. Plus, it’s just so relieving to know that you don’t have to work to make ends meet.
Financial independence allows you to:
Rest easy knowing that you and your family will be provided for in an emergency
Find work that is more fulfilling
Take career risks like launching your own business, investing in a startup, or going freelance
Pursue hobbies that you love
Spend more time with family and friends
Imagine what you’d do (realistically) if you didn’t have to worry about money. That’s what financial independence can enable.
It’s Never Too Early to Start Working Towards Financial Independence
With careful planning and focus on your goals, anyone can achieve financial independence. Shifting your mindset from “That can’t happen” to “This is what needs to happen” is also a big component of financial independence. From there it becomes “How do I make it happen?” Because it is possible. People achieve this status everyday — and many of them are younger than you’d think! It’s never too early to start thinking about what financial independence means to you, or to start mapping out a plan to get there.
If you need help getting started or would prefer guidance along your journey towards financial independence, contact Guiding Wealth. We’re here to help you plan for your future so you can enjoy life now (and then).